Outside Markets as of 6:15am: Dollar Index up 0.0390 at 82.1940; Euro down 0.00110 at 1.32720; S&P’s are down 3.00 at 1986.50; Dow futures are down 16.00 at 17,000.00; 10-yr futures are up 0.11%; The Nikkei closed down 0.30% at 15,539.19; The DAX is down 0.66% at 9,339.57; The IBEX-35 is down 0.54% at 10,499.00; Gold is up $6.70 at $1282.10; Copper is up $2.15 at $321.65; Crude Oil is down $0.0024 at $93.72; Heating Oil is down $0.0014 at $2.8397; Paris Milling Wheat is up €1.00 at €172.50/MT.
Global equity markets are on the defensive this morning ahead of an important speech by Federal Reserve chairwoman Janet Yellen at the Fed Symposium in Jackson Hole. Yellen is expected to be dovish in her comments, but the Jackson Hole presser was the site of some pivotal speeches by chairman Bernanke. The Dollar Index continues to hang around 11-month highs after surging upon the release of the Federal Reserve minutes Wednesday in which some officials expressed they were “increasingly uncomfortable” with the central bank’s forward guidance on rates. In other currency moves, the Argentina peso weakened 1.3% this week to 8.3932 on the official rate, the biggest drop since January 24th. People are demanding more hard currency after the government proposed exchanging overseas debt into notes governed by local law. Grain hoarding is likely to continue.
Several showers moving across the Midwest this morning including scattered precip in N-SD and all of ND, while a separate band works across IA/N-MO/IL/IN/OH. Precip this week has been relegated to the ND/SD border, MN/WI and the ECB. The next 3-days are still expected to bring heavy rainfall to MT and SD with areas in between benefitting. The entire state of MT looks set for a general soaking with localized totals as high as 4.4”. Precip will continue in the WCB next week as NE/IA/SE-SD/S-MN sees additional precip Monday-Wednesday. One areas which has had entirely too much rain is SW-ND as they try and harvest their HRS crop. The map below shows the 14-day observed precip map with 2-3” totals common and localized amounts in excess of 8-10”. Harvest is at an absolute standstill in an area where ND usually relies on for higher protein blends.
Modest bounce higher led by old crop soybeans as the extreme basis levels being paid by domestic crushers continue in the search for the last available soybean ahead of new crop harvest. No end user of soybeans wanted to buy one single extra soybean at the inverses we’ve seen all summer, but it looks like we’re finding out who had coverage and who was trying to bridge the gap to new crop beans in the South. Going home last night it was reported Claypool, IN crushers had paid as much as +400X for spot beans, while C-IL was touting +310X, S-MN at +300X and Wichita, KS at +300X. Essentially, the ECB is paying $14.50/bu while the rest of the country is paying $13.50. An interesting way to think about the surge in the SU/SX and the record basis levels is by looking at the September board crush at $1.27/bu positive. In order to take the aforementioned board crush to ‘zero’ margin, the ECB bid would be +525X, or $16.75 while the rest of the country would be near $15.25. Point is they have ample margin to pay up in the manner they’re doing, but once the coverage is attained, the bids will vanish. Difficulty in sourcing northbound freight to carry Delta soybeans is compounding the issue.
At the end of the day, the current atmosphere outlined above certainly feels like a carryout closer to 50mbu than 140mbu, but the September 30th stocks report and the updated 2013 production estimate will have something to say about that.
Trying to work against the bullish cash situation is the continued yield results from the Pro Farmer Tour. Last night, IA and MN results were published with big potential for the soybean crop in those two states. Iowa pod counts in a 3x3ft square totaled 1,173.59, above the 3-yr average of 1,049.8 and 27% higher than 2013’s 927.30. In MN, pod counts were 1,031.54, above the 3-yr average of 975.99 and above 2013’s 869.42. On corn, Iowa yield was pegged at 178.8bpa vs. 171.9bpa last year and compares with 185bpa on the USDA’s latest production estimate. In MN, the state-wide yield was estimated at 170.8bpa vs. last year’s 181bpa and the USDA guess of 168bpa. The MN yield seemed to the most market attention last evening when the data was released. Pro Farmer will issue their official national yield estimate after the close today.
StatsCan released their June 2014 Principal Field Crops Report yesterday with all-wheat production coming in at 27.704MMT, compared with pre-report estimates averaging 28.5MMT. Canola also came in under estimates at 13.908MMT vs. average trade ideas around 14.85MMT. Both numbers would be down sharply from 2013 thanks to lower acreage, but StatsCan is known for being especially conservative in their early season production estimates. Still, the real feature in the Canadian wheat crop could end up being quality, just as it is shaping up in the US. Protein scales in the US are still commanding a hefty premium for high protein with 14.0% on the MGEX spot floor pegged at +170/230U and 15.0% at +290/325U. 12-pro HRW sits at +118/128U. If the wet conditions continue to impact ND, protein could become a prized procession just as it did last year. The next 2-weeks are critically important.
While on the subject of wheat, Reuters released an article yesterday talking about France importing milling wheat from Lithuania and Britain to supplement their domestic milling industry thanks to the deluge of feed supplies this year. France is the largest exporter of wheat in the EU, and hasn’t imported wheat since 2010/11, the last time quality was an issue. So far the tonnage only amounts to 27,500MT, but the fact it is occurring with harvest just wrapping up highlights the problems with quality. Sources suggest France will have a very difficult time meeting quality specs for some of their stalwart customers such as Algeria, Morocco and Egypt. The potential exists for the Black Sea and US to hit these markets provided quality can be assured in those countries. Corn imports should drop mightily in the EU this year.
The U/Z calendar spreads continue to show strength in the wheat markets as well as the corn market, lending credence to the idea grains have found a more serious intermediate-term bottom. The CU/CZ is trading at -6.00c this morning, the highest level since July 14th, while the CZ/CH and CH/CK have also been able to trade off recent lows. Seasonally, CZ should see weakness right into new crop, but big crop projections seem to already be baked into the market according to the market structure. U/Z wheat spreads are also showing incredible strength with the WU/WZ hitting -7.75c yesterday, the highest level since March 20th. KC and MPLS have also seen strength in front-month spreads. Deliverable supplies are becoming a hot commodity given the quality concerns in the US and abroad. With deliverable stocks below a year ago, supply levels should lend support. Bottoms feel in for now.
Bottom Line: Markets look like they want to be firmer into the weekend with Pro Farmer slated for after the bell and cash strength lending support. Balance sheet projections are huge for both the US and world S&D’s, but corrective bounces are always warranted. Farmers remain undersold, and this will limit rallies, but the market will see just how strong the farmer’s resolve is to not sell these prices. Freight and storage will be pinnacle issues this year. Technicals look good for a continued bounce in the grains while the downtrend is still firmly intact for SX.
Good Luck Today.
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