Outside Markets as of 5:35am: Dollar Index up 0.2030 at 96.1690; Euro down 0.00240 at 1.10510; S&P’s are up 2.75 at 2099.25; Dow futures are up 23.00 at 18,109.00; 10-yr futures are down 0.06%; The Nikkei closed up 0.26% at 18,751.84; The DAX is up 0.50% at 11,447.25; The IBEX-35 is up 0.41% at 11,096.50; Gold is down $0.90 at $1200.00; Copper is up $1.45 at $267.40; Crude Oil is up $0.50 at $52.03; Heating Oil is up $0.0028 at $1.9041; Paris Milling Wheat is up €0.50 at €186.75/MT.
Chinese officials announced an official growth target of about 7% last night, down from 7.5% last year following growth in 2014 of 7.4%, its slowest in almost 25 years. 7% growth is still an incredibly robust economy by any developed countries’ standards, but compared with growth throughout the 2000-2013 time frame, 7.0% could feel like a recession to the people and business owners of China. There will be growing pains as China transitions to a service based economy with a more mature population and larger middle class.
Crude oil inventories stayed the course this week, building by another 10.3 million bbls, blowing away analyst expectations for a build of 4.60 million bbls. Total crude inventories now measure 444.37 million barrels, the highest on record. Some analysts think storage tanks measuring 85 million barrels located in Cushing, OK are now close to 2/3’s full, and at the recent rate of increase, could be completely filled by mid-April. Despite the negative news, crude oil prices managed to close up by more than $1.00/bbl, a possible sign peak oil production has been mostly priced in. Elsewhere, the US Dollar Index rose to fresh 11-year highs yesterday of 96.0590, thanks in large part to a plummeting euro as the EU gets set to kick off their own QE program. Also, Brazil’s central bank raised borrowing costs for a fourth straight meeting to the highest level in almost six years as monthly inflation jumped to the highest since 2003. Benchmark lending rates are now 12.75% in hopes of combatting the rapidly deteriorating Real which dropped to a 10-yr low yesterday. Recent economic data out of Brazil suggests 2015 economic contraction could be as much as -0.58%.
A giant band of moisture moving from E-TX to ME this morning with a mix of snow, rain, sleet and other wintry mix, especially along the Gulf Coast. The majority of the expected precip should finish up in the next 6-12 hours which will add to the 48-hour precip totals seen below. There are still large swaths of the central/WCB as well as southern plains which are running moisture deficits over the last 30 and 60-day time periods. Extended maps from NOAA suggest a warm, dry stretch of weather during the 6-15 day which will have farmers chomping at the big as this gets us out to the middle of March.
Mixed to weaker markets this morning following the sizable losses Wednesday, although wheat contracts haven’t been able to penetrate either the January or September lows just yet. Soybeans on the other hand have now managed to plunge through both the $10.00 handle as well as the 50-day MA, both of which are going to keep trend followers more apt to sell soybeans than buy. In addition, soybeans failed at support levels at $9.9425/50, and could possibly be setting the stage for a larger head-and-shoulders pattern in coming sessions. Corn has remained especially resilient while wheat and soybeans have sold off, preferring instead to keep coiling inside recent flagging action. Corn volume has also dropped considerably during the recent consolidation with yesterday’s volume of 195,122 contracts the lowest since 1/27. Corn seems to be priming itself for a breakout, and given the weak trade posted by corn and soybeans, it would certainly be against the grain for a substantial rally. The next major fundamental input for our markets will be the Marth 10th WASDE next week.
As was feared by several analysts, the 250 WH5 deliveries posted by Nidera Tuesday evening were in fact US 2 SRW 3ppm vomi, which hung on spreads heavily during the session Wednesday. After trading as high as +8.50c Monday, the WH/WK hit -3.75c Wednesday before recovering while the WK/WN hit a low of -7.25c. With over 1mbu of off-grade wheat having been dumped into the delivery warehouse system, stoppers of futures now have the uncertainty of knowing what grade of wheat they will receive when standing on paper. This proposition is obviously a risky one for any end user needing a specific quality grade, and sellers reacted accordingly. There are some analysts who believe the deliveries are enough of a game-changer they could push WK/WN beyond full delivery storage carry, enacting an increase to the variable storage rate. Either way, puts great emphasis on the 15/16 crop.
Spring wheat basis firmed noticeably on the Minneapolis spot floor, improving by 10-125c for 13.0% pro and 14.0-15.0% pro. Going home, 14’s were indicated at +245K and 15’s at +500K. The bid for high proteins is getting back to the high-water mark witnessed last fall when the quality scare was in full swing. Movement by elevators and selling by farmers has slowed down considerably as futures have dropped down to September and January lows once again. There were only 38 cars on the spot floor Wednesday. One should be watchful for any confirmation by calendar spreads which would suggest being wary about pressing futures “down here.” KCBT spot floor premiums saw isolated strength, but the majority of classes were unchanged. No change to CIF NOLA SRW bids at this juncture.
Corn basis saw a nice jump at several locations Wednesday, partially in response to the lower board and lack of farmer selling, but also due to a worsening of railroad performance. PNW corn shuttles went home bid +108K for this week and +106/102K for FH-Mar/Full Mar. These sort of levels would compare with +99/97K a week ago, or up 7-10c depending on the slot. Group-3 basis was steady vs. Tuesday at -1K, but up 6-7c from week ago levels. There were also several destination ethanol plants which showed improved basis of 2-3 w/w. CIF NOLA corn premiums were relatively static, however, undoubtedly showing pause due to the heavy deliveries this week. CIF NOLA corn went home at +53/55K for Mar, +53/54K for AM and +48/51N for JJ. CIF NOLA soybean premiums did have a decidedly negative tone compare with late last week and early this week. The entire trucker strike premium has been extracted.
Weekly ethanol production saw another modest decline of 16,000bbls/day to 931,000bbls/day, which put the rate right at the needed weekly level to hit the USDA’s corn demand for ethanol forecast. Stocks also dropped 66,000 bbls to 21.528 million barrels, still near the highest levels since April 2012. The recent string of exceptionally strong ethanol production rates has provided a strong buffer against softening production as of late, which should prevent any need for an update on next week’s WASDE report. In addition, RBOB/Ethanol spreads have rebounded sharply with the nearby spread trading around 42c/gln and the 6-month strip trading at 37.6c/gln. This would compare with ethanol trading a premium to RBOB just a couple of months back, a situation which killed any and all discretionary blending above and beyond the mandated level.
Export sales out later this morning are expected to come in as follows: wheat 350-750TMT; corn 700-1300TMT; beans 200-600TMT; soymeal 0-225TMT; soy oil 5-20TMT. Traders will be watching soybean and soymeal sales closest following the slowdown in sales and shipments of soybeans as of late as well as the net cancellations witnessed in soymeal last week.
Bottom Line: Keep an eye on export sales for early price direction as traders will be watching closely to see if the soybean program is over and if the corn program can sustain recent performance despite cheap stem from Ukraine and Argentina. Technicals are slipping negative, and currency influence has been mostly negative towards our space. The Brazilian, Ukrainian and Argentine currency moves are playing a bigger role than they ever have, and monitoring events there will be important during 2015. A rebound in price today seems probable.
Good Luck Today.
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