8/22/2014 Morning Comments

Good Morning,

 

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.

 

ND AHPS 8-22

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

8/20/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:15am: Dollar Index up 0.1940 at 82.0770; Euro down 0.00380 at 1.32830; S&P’s are down 0.75 at 1976.50; Dow futures down 6.00 at 16,875.00; 10-yr futures are down 0.04%; The Nikkei closed up 0.03% at 15,454.45; The DAX is down 0.36% at 9,300.45; The IBEX-35 is up 0.10% at 10,396.60; Gold is down $2.60 at $1294.10; Copper is up $1.90 at $313.80; Crude Oil is up $0.27 at $93.13; Heating Oil is up $0.0054 at $2.8225; Paris Milling Wheat is unchanged at €172.50/MT.

Very quiet global equity markets this morning ahead of the release of the minutes from the latest FOMC meeting.  Investors will be scrutinizing the language of the minutes closely, looking for any sign as to when the Federal Reserve may begin raising interest rates in 2015.  Possibly in anticipation of more revealing language, the US Dollar Index is surging to fresh 11-month highs this morning near 82.1180.  In response, the CRB-Index is hitting the lowest levels since February, a move not lost on money managers.  Crude oil continues to press lower, but today’s EIA report is expected to show a 1.175 million bbl decline in crude oil inventories.  US crude oil inventories remain adequate at +2.7% above the 5-yr seasonal average.

Scattered showers across the Midwest this morning with SD/IA/OH seeing varying amounts.  3-day forecasted rainfall totals are still showing heavy rains for all of MT, W-ND, swaths through SD and N-NE by Saturday.  Heaviest amounts could come in at 3.00” localized in MT, while 2.0”+ totals could be common in the Dakotas when it’s all said and done.  Follow up moisture will ensue next week for the Northern Plains as well, impacting small grain harvest but likely delivering the finishing rains the fall crops need.  The 7-day forecasted precip map is below.  No change to extended maps with above normal precip and below normal temps still expected through Labor Day.

 

Mixed to weaker markets as we find ourselves on hump day with traders still assessing Pro Farmer yield results against volatile cash markets as we get closer to filling the old crop/new crop void.  The sharp rally in domestic soybean premiums yesterday helped support the SU/SX calendar spread, and proved the old crop soybean balance sheet is still tight ahead of new crop.  Soybean basis into IA crush plants was thought saleable yesterday at +250/270X, while IL/IN crush plants thought to be willing to pay +300X.  That equates to roughly $13.00-13.50 cash soybeans, which one could essentially call cash soybeans a flat price commodity at this point given the lack of delivery mechanism tied to bidding over the November board for spot soybeans.  As mentioned, this helped push the SU/SX to +77.50c overnight, new contract highs, even though standing on September futures doesn’t guarantee load out until at least September 15th or at worst October 15th.  Those dates don’t do crush plants in IA/IL/IN much good with nearby needs.  As a sign of the domestic strength, export bids were fully steady yesterday.  Unfortunately, the solid crush report from NOPA and the domestic strength isn’t enough this late in the ballgame to be fundamentally important enough to stabilize and rally the board.  The weight of new crop and the rains received and forecast continue to hamper board strength.

Day 2 of the Pro Farmer Tour found big yields in IN and NE as expected, but comparing to the 3-yr average is obviously troublesome given the 2012 drought.  Nonetheless, in IN, tour participants came up with a statewide yield of 185.03bpa vs. 167.4bpa last year the 3-yr average of 141.24bpa, with ear counts again pushing over 100 in a 60ft row.  Pod counts in IN measured 1,342.42 in a 3x3ft square vs. 1,185 last year and 1,190.18 on the 3-yr average.  NE showed a statewide yield of 163.77bpa vs. 154.9bpa last year and 146.81 average, while pod counts measured 1,103.26 vs. 1,138.9 last year and 1,106.62 on average.  Pro Farmer will kick out final results with a nationwide yield estimate Thursday.  If memory serves correctly, ProFarmer came in below the USDA average yield estimate by 3-4bpa last year, but still serves as a fairly reliable indicator.

Would be remiss without mentioning the U/Z strength at the three wheat exchanges yesterday, even though a bit of strength has been lost overnight.  The WU/WZ pushed to -9.00c yesterday, the highest level since March 25th, while both the KWU/KWZ and MWU/MWZ capped off a four day rally.  The strength can probably be attributable to a multitude of reasons, not the least of which is vomotoxin concerns in the new crop SRW which is placing a premium on deliverable supplies from last year.  This would help explain the front-end rally in Chicago wheat while the back end has been relatively muted.  In addition, deliverable supplies continue to run well below a year ago, despite harvest being essentially complete.  Decent draws in supplies were also seen in Minneapolis (-548,000bu) as vom concerns crop up in ND-HRW and likely could spill over into the HRS without a change in the weather pattern.  News yesterday of the Ukrainian Milling Association asking for export controls on wheat due to high feed wheat supplies also has the wheat market a bit rattled.  Confidence in all-out export bans is low, but the large percentage of feed vs. milling wheat this year will affect trade flows.

A quick look at the domestic margin recap from www.rjomrt.com reveals still solid margins for most end-users of corn.  Spot ethanol margins improved to $1.35/gln last week vs. $1.25 the previous week at $1.07 last year.  Broiler crush was essentially unchanged at 79.76c/lb vs. 70.15c/lb last year.  Hog crush continues to be profitable at $123.57/hd despite being down from last week at $128.39/hd but above $94.60/hd last year.  Cattle feeding margins remain dismal with near record feeder prices at $72.57/hd vs. $193.38/hd last year.  C-IL crush margins remain excellent at $1.55/bu vs. $0.83/bu last week but below $2.58/bu last year.  This is where the basis strength and bidding power is emanating from.

 

Bottom Line: Not real close to any huge technical buy/sell triggers for corn and wheat which likely means consolidation into the weekend looks appropriate.  Weekly ethanol data today should confirm a continued appetite for corn and a solid foundation of demand into the 14/15 marketing year.  ProFarmer results will continue to be bantered about in the market, but the next big USDA yield report doesn’t come until October.

 

Good Luck Today.

 

8-20 HPC

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

8/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.1210 at 81.6910; Euro down 0.00170 at 1.33460; S&P’s are up 2.75 at 1970.25; Dow futures are up 38.00 at 16,831.00; 10-yr futures are up 0.07%; The Nikkei closed up 0.83% at 15,449.79; The DAX is up 0.79% at 9,318.60; The IBEX-35 is up 0.25% at 10,379.70; Gold is up $1.70 at $1301.00; Copper is up $0.85 at $314.20; Crude Oil is up $0.46 at $94.22; Heating Oil is up 0.0148 at $2.8208; Paris Milling Wheat is down €1.00 at €170.25/MT.

Global equities are on the rise this morning as tensions in Ukraine seem to be easing for the time being, while economic data in the US continues to suggest an improving outlook.  Russian Foreign Minister Sergey Lavrov said issues related to sending a humanitarian convoy to Ukraine had been resolved following weekend talks in Berlin with his counterparts from Ukraine, Germany and France.  In the US, a survey showing sentiment among home builders improved in August for a third straight month.  On deck today in the US will include US inflation statistics which stabilized in May and June.  Today’s CPI report is expected to show +2.0% y/y for July, down slightly from the 1-1/2 yr high of +2.1% in May and June.  July housing starts are expected to show a jump of +8.4% to 968,0000 units, reversing the -9.3% decline to 893,000 seen in June.

A mostly dry Midwest outside of a few showers in KS/N-MO.  The next shot of moisture for the Midwest comes tomorrow in NE/MO with totals mostly under 0.50”, while heavier amounts look to fall in SD/ND/MN/N-NE beginning Wednesday into Thursday.  Totals for this system have the potential of producing 0.50-2.00” amounts.  This moisture will then move east across the Great Lakes Thursday into Friday while more moisture is slated for Friday-Sunday in the Northern Plains and NE.  The rains last week promising finishing moisture fizzled out, so getting the forecasted moisture with these systems will prove key to achieving top end yield potential in SD/ND/MN.  Extended maps from NOAA keep below normal temps and above normal precip in place through Labor Day weekend.

 

A continuation of the lower closes posted in grains yesterday as we begin this Tuesday with plenty of fodder stemming from the Pro Farmer Tour, and technicians growing louder in their calls for bottoms in some of our markets.  The Pro Farmer tour began their four day trek in South Dakota and Ohio on two separate legs with stops in NE also occurring.  The tour found an OH average corn yield of 182.11bpa vs. the 3-yr average of 146.13bpa.  Ear counts proved the biggest difference from average with 100.17 ears in a 60ft row vs. 89.37 on average.  Pod counts were also higher with 2014 showing 1342.42 vs. the 3-yr average of 1190.88 in a 3×3 ft. square.  South Dakota clocked in at 152.71bpa for 2014 corn yield, above the 3-yr average of 125.70bpa, while pod counts were 1,057.80 vs. 902.76 on average.  Obviously 2012 will skew the averages lower, but the Ohio corn yield is up 6% from a year ago while SD is -5.5%.

Lots of data released in the last 3-days including NOPA crush data out Friday which confirmed the strong crush pace and meal usage this summer.  July member crush totaled 119.6mbu, up from the June crush of 118.7mbu and sharply above the average trade guess of 115.8mbu.  The 119.6bu proved larger than the top end analyst estimate of 117.4mbu.  The data will likely lead to the USDA bumping their marketing year crush estimate higher than the current 1.725bbu guess.  However, given the June 30th stocks data showing a negative residual, it likely means the USDA will just adjust the 13/14 soybean crop larger to account for the increased demand.  NOPA members reported 392,000 short tons of exports of soymeal in July, up from 388,000 in June and above a year ago at 352,000.

Commitments of Trader Data released Friday didn’t have anything too out of the ordinary, although when taking a deeper look through the corn section, some interesting observations jumped out.  It’s been said thousands of times this summer “the US farmer is undersold.”  While anecdotally, this seems true, it’s tough to gauge without looking at the Gross Commercial Short position.  This group is a proxy for the farmer as it’s the portion of the report that covers short hedgers, or entities that buy grain and need to hedge downside exposure.  In doing so, it was revealed this group accounts for 32.3% of total open interest vs. August ’13 at 26.7%, August ’12 at 45.3%, August ’11 at 42.5%, August ’10 at 46.7%, August ’09 at 37.7%, August ’08 at 42.0% and August ’07 at 47.5%.  Taking an average of 2007-2013 we come up with 41.2% vs. this year’s 32.3%.  So while above a year ago, the commercial short position is well below average, hinting the US farmer may in fact be undersold relative to crop size.  It’s possible last year was an aberration coming off of a drought year an farmers wanting to get in the fields before becoming too committed.  This year looks like a disagreement with prices.

Also in the COT data, it was interesting to see the continued shedding of length by the aggregate large spec position across all Ag, Livestock and Soft commodities.  As a total position, these traders are net long 40,053 contracts, the smallest net long across the 12 markets since they were net short on 1/28/14.  As important is the bullish sentiment reading which shows the large spec position has 50.8% of its positions long vs. 49.2% short.  When this indicator dips below 50% long, it is an indicator to be watchful for a turn in sentiment now that more of the trend followers positions are short.  A chart showing bullish sentiment can be seen below with the red line denoting 50%.

While this analyst hasn’t paid much attention to chatter related to FSA acreage changes released last week, one prominent Tennessee-based researcher came out over the weekend touting sizable declines in both corn and soybean planted/harvested acreage.  In their commentary, they suggested a decline of as much as 2.5 million corn acres, and 1.5 million soybean acres.  While yield will have the largest say in balance sheet projections, declines in acreage such as those mentioned would grab market attention.  It should be made blatantly clear, however, that these numbers are preliminary in their purest form.  This is just the first of six acreage revisions with more data to be kicked out in coming months.  Too early to make and serious projections, but to see a large research firm touting numbers like those was noteworthy.

Nothing too exciting in crop progress numbers last night.  Corn conditions down 1% G/E to 72%, while soybeans were up 1% to 72% G/E.  Spring Wheat conditions declined 2% to 68% GE, but remain right at the 5-yr average.  HRS harvest was estimated at 17% nationally, up from 6% last week, but below 33% average.  SD is 35% harvested vs. 75% average while WA led progress nationally at 68% harvested vs. 34% average.

 

Bottom Line: Expect more headline volatility out of the Pro Farmer Tour as tweets of good and bad crops alike make their way across the Web.  Solid crops are in the fields with finishing rains needed to ensure record potential.  Grains feel as though downside momentum has been lost with consolidative trade likely in the coming days/weeks.  The Russia/Ukraine situation will keep things volatile, but as long as exports keep leaving the Black Sea, a sustainable rally on that issue will prove elusive.  Funds seem to be in wait and see mode until we get through August.

 

Good Luck Today.

 

Aggregate Spec Long 8-18

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

8/14/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 5:55am: Dollar Index down 0.0570 at 81.5390; Euro up 0.00090 at 1.33790; S&P’s are up 2.25 at 1947.00; Dow futures are up 20.00 at 16,639.00; 10-yr futures are unchanged; The Nikkei closed up 0.66% at 15,314.57; The DAX is up 0.52% at 9,246.66; The IBEX-35 is up 0.27% at 10,331.90; Gold is up $2.00 at $1316.50; Copper is up $0.15 at $311.35; Crude Oil is down $0.09 at $97.50; Heating Oil is down $0.0167 at $2.8852; Paris Milling Wheat is down €0.75 at €170.50/MT.

Despite poor economic data out of Europe early this morning, equities around the globe are putting on a modest bounce.  Early today, France reported zero growth during the second quarter, missing forecasts for an increase of 0.2-0.3%.  Germany fared worse, seeing its economy contract by -0.2% during the period between April and June, and keeping the Eurozone recovery in doubt.  In the US today we will have weekly jobless claims which are expected to rise 6,000 to 295,000, reversing part of last week’s 14,000 decline.  The Dollar Index continues to consolidate between the 81 and 82 handle areas following the July rally, a generally negative period for commodities.  Momentum is slowing as the Dollar Index continues to slow, keeping open the idea of a bearish divergence and a setback in price.

Scattered precip and lightning moving across ND/SD this morning, although fairly dry across the rest of the Midwest.  The WCB is expected to be pretty active the next 3-days with SD/W-ND/E-NE/S-IA seeing the most activity.  This morning’s NOAA maps suggest rains in W-SD of up to 2.50” which wouldn’t be shooed away, although would impact small grains harvest.  Otherwise the rest of the Midwest should see fairly normal precip with most growing areas receiving moisture in the next week, keeping crop prospects high.  No big changes in the extended maps from NOAA with the 6-10 suggesting normal/above temps and normal/above precip during the 6-10, and similar precip but cooler temps during the 8-14.  Nothing threatening through August, which will likely weigh on trader sentiment.

 

Easier markets this morning following yesterday’s mostly lower closes as markets move past the brief pop following the “less-bearish” USDA reports and refocus on global balance sheets and favorable weather.  Already, bears are coming out in defiance of the USDA’s recent yield projections, sighting crop conditions, weather forecasts, past yield performance following increases on the August report and a heavily undersold US farmer.  While downside momentum has definitely slowed or even stopped altogether, our markets don’t exactly have a big catalyst to tack on a rally.  China is absent the corn market, Black Sea wheat production and export prospects look incredibly solid barring a flare up with Ukraine, and South America looks poised to increase soybean acres given a 2.74 SK15/CK15 new crop ratio for SAM farmers.  Just because supply didn’t rise as much as feared doesn’t mean demand doesn’t have an equally important role to play in our markets moving forward.

Ethanol enjoyed headlines for several different reasons, but namely the surge in price during yesterday’s session.  Front-month continuous ethanol jumped 10c/gallon yesterday to $2.171, the highest level since July 30th, but September futures hit new contract highs by quite a margin.  This in-turn helped support the continuous ethanol board crush which also surged 10c/gln to $1.12/gln, the highest level since the end of July.  A sharp contraction in weekly stocks, and what may we improving export demand, are thought to be drivers.  Weekly ethanol production did recover last week, jumping 29,000bbls/day to 931,000bbls/day, well above the 869,000bbls/day level needed to meet the USDA’s recently revised production estimate.  June-July ethanol production averaged 949,000bbls/day, well above the level needed and could leave the door open to another increase in 13/14 ethanol for fuel demand for corn.

Export demand for corn at “these levels” also seems to be constant with the USDA reporting yesterday another 107,600MT sold to Mexico, and 130,000MT sold to unknown destinations for the 14/15 crop year.  Export basis levels haven’t changed all that much for corn recently with nearby shuttles still bracketed +125U for Aug/Sept and +120Z for OND going to the PNW.  HETX firmed slightly to +105U yesterday, while other destination rail markets were unchanged.  Posted bids at major ethanol plants were steady with Cedar Rapids at -5U for spot and Columbus at -12U.  There remains a large portion of last year’s corn crop to be marketed and moved ahead of new crop, and most aren’t sure whether the farmer dumps it in the days/weeks leading up to new crop, or whether attempts to store via piling.  Either way, rail performance isn’t expected to improve markedly leading up to fall harvest.

Yield reports out of South Dakota continue to confirm a sizable HRS crop, with many producers reporting better spring wheat than winter wheat yields.  Quality has been reported as pretty good with 60+ TW’s, but protein in the 13.2-13.8% on average so far.  High-pro spring wheat is still commanding a premium on the spot floor in Minneapolis until more is known about the spring wheat crop with 14.0% bid +160/200U and 15.0% bid +275U.  12.0% pro on the KCBT is unchanged on the week at +100/110U.  Given the known production of this year’s HRW crop, and the perceived production on this year’s HRS crop,  it remains somewhat puzzling to see MWU/KWU and MWZ/KWZ trading near even-money.  These spreads were trading near -40.00c in late-May, and barring a major surprise in ND, should revisit similar levels.  KC gains on MW seasonally through August.  Inter-market hedgers should be paying attention.

Speaking of paying attention to spreads, the CZ/CH is back out to -13.25c overnight, equating to 78% of full financial carry with 2.25% contribution to interest.  CH/CK is trading at 75% of full financial carry, and both spreads are offering decent opportunity to get hedges rolled to their respective months if the grain isn’t going to be delivered against the December.  It’s been quite some time since we’ve seen a corn spread trade to full carry, although given the production and carryout indications, this might be the year.  Scaling into a trade is never a bad approach.

Export sales on deck this morning with wheat looking for 450-680,000MT, corn at 70-200TMT old and 650-900TMT new, soybeans at 50-120TMT old and 900-1,250TMT new.  Meal at 50-300TMT old crop and 300-500TMT new crop while soy oil is seen at 0-20 old and 0-10 new.

 

Bottom Line: Weaker markets as we consolidate recent moves following the USDA reports.  The next big USDA reports will be the September 30th Stocks reports and then the October production reports.  Until then traders will focus on finishing weather (good), breadth of demand (okay), and sell patterns from farmers (dismal).  Make sure balance sheets are stress tested against current and lower prices to ascertain where returns exist.  14/15 has the makings of a “margin-survival” year provided no black swans are readying for take off.

 

 

Good Luck Today.

 

HPC 8-14

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

8/13/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:00am: Dollar Index up 0.1420 at 81.6410; Euro down 0.00110 at 1.33580; S&P’s are up 9.25 at 1939.75; Dow futures are up 67.00 at 16,586.00; 10-yr futures are down 0.11%; The Nikkei closed up 0.35% at 15,213.63; The DAX is up 1.00% at 9,159.89; The IBEX-35 is up 0.44% at 10,286.70; Gold is down $0.10 at $1310.50; Copper is down $2.15 at $313.30; Crude Oil is down $0.01 at $97.37; Heating Oil is up $0.0053 at $2.8508; Paris Milling Wheat is up €0.75 at €172.75/MT.

The Bank of England is grabbing headlines this morning after it lowered its forecasts for wage growth in the U.K., saying pay will rise 1.25% in the fourth quarter, down from the 2.5% projected in May.  Wage growth will reach 3.25% at the end of 2015, down from 3.5% on the previous estimate.  Data in the US today will include July retail sales which are expected to show a modest increase of +0.2% and +0.4% ex-autos, matching June’s gains.  June business inventories are also slated for release this morning and are expected to show a solid increase of +0.4%, adding to the +0.5% seen in May.  Business inventories-to-sales in May remained at a relatively tight ratio of 1.29 months due to strong sales.  The business inventory-to-sales ratio has been locked in a tight range of 1.29-1.31 over the last year and half, in line with the average seen pre-recession of 1.29.

Bone dry Midwest again this morning as the next shot at moisture doesn’t come for anyone until Friday/Saturday when storms are expected to move into ND/SD bringing moderate to heavy totals from NE-MT to SE-SD.  Heaviest totals would be in NC-SD totaling 1.16” where it is badly needed to finish off row crops, although small grain harvest would be impacted.  This system will push into the central corn belt bringing moisture to much of the central and eastern corn belt.  One more soaking rain is needed from MT to OH to finish both the corn and soybean crops, and ensure the yield forecasts given yesterday live up to the hype.  Nothing threatening in the extended maps, although above normal precip will remain a feature for areas east of the Mississippi River.

 

Mostly firmer Ag markets this morning following the USDA data yesterday which saw positive closes for the corn market, but weaker closes for wheat and soy.  My first blush on the yields from yesterday is the market got the yields it wanted, but the bears didn’t.  The USDA took a calculated approach to increasing the national average yields for both corn and soybeans, preferring to wait until August weather is known before surging yields to levels being bantered about in the trade.  The “big crops get bigger” mantra was out in full force yesterday, and probably kept corn from rallying further than it did, but the market will be switching focus to demand in an increasing manner moving forward.  As has been discussed in this space previously, it feels like corn is becoming comfortable with current balance sheet projections, although soybeans still look as though downside is ahead.

Starting first with the old crop corn balance sheet, the USDA increased ethanol for fuel demand by 45mbu and exports by 20mbu, dropping old crop carryout to 1,181mbu.  On the new crop balance sheet the yield was increased to 167.4bpa, up from 165.3bpa in July which added 172mbu to production.  Offsetting a lower carry-in with a higher production, total supply increased 107mbu.  Demand line items changed were a 50mbu increase in feed/residual, 25mbu for ethanol for fuel and a25mbu increase to exports.  All told, carryout rose by just 7mbu to 1,808mbu when most analysts were forecasting carryout over 2.0bbu.  This was at the very least a moral victory for bulls, keeping carryout nearly unchanged with record yields.  Several assumptions are worth pointing out, however, and we’ll start with yield.  Many observers couldn’t believe the IA and IL crops couldn’t carry the US over 170bpa, which they still might.  But when looking down the list of states, it was interesting to see such a sharp decline in many mid-South and Delta corn yields y/y.  AR was -7bpa, GA -13bpa and KY -32bpa.  While state yields were up in MS and LA, their state production was down by 53mbu and 42mbu, respectively.  Taken collectively, these 5-states saw production down 225mbu y/y, which is the equivalent of 2.4bpa across the entire United States.  IL/IA might be fine on their own, but there are a lot of states dragging down the national average when looking in aggregate.  Also worth pointing out, population statistics compiled by the USDA pointed to records across the 10-states surveyed in the corn belt.  Derived Grain Weight wasn’t as high as the record years of 2009 and 2004, but some discussion was had about that saying the crop is behind schedule which could impact ear weight at this point.

On the demand side of the ledger there were also some sticking points.  I have no problem with the ethanol for fuel line item in the 14/15 balance sheet, although I think it will be increased in subsequent reports.  Feed/residual also looks appropriate at 5.250bbu, up from the current year’s 5.175bbu on livestock profitability and cheap corn. Exports, however, looked high before the report and look too high today after being increased 25mbu to 1.725bbu.  For starters, the USDA still has China importing 3MMT of corn, which is probably too high on all accounts, but especially is the USDA is planning on any of that coming from the US.  That is of course unless they know something we don’t about the Chinese import ban on MIR-162.  Secondly, feed wheat supplies are still on the rise in the EU-28 which will cut their corn import needs.  The USDA dropped EU corn imports from 11MMT to 9MMT, but cash sources suggest this eventually drops 4-5MMT.  Ukraine could also continue to fill the lion’s share of those needs with increasing corn supplies.  There are whispers in the trade of the commercial trade penciling 14/15 corn exports at 1.4-1.5bbu.  If that is the case, carryout jumps right back to 2.0bbu and corn prices probably need to trend a bit lower still.  There are still big time risks to the corn market by way of a slightly increasing yield and demand items which could see pressure.  December corn is trading as though it is fairly priced, and it may be today, but we haven’t harvested a bushel yet either.

Switching gears to the wheat market, the surprise was definitely on the bearish side.  Winter wheat production saw a bearish surprise by the USDA increasing winter wheat production by 35mbu, and increasing other-spring wheat production by 7mbu, although that could still move higher based on yield reports emerging from South Dakota.  In addition, and probably even more importantly, the USDA upped Russian wheat production by 8.9MMT to 59.0MMT when most were looking for a 4-6MMT increase.  The USDA had several slides in their lockup briefing pertaining to ideal Russian weather and it would certainly suggest they had just that.  Reuters also reported yesterday Russia is working on signing an accord with Egypt to supply them at least 5.0-5.5MMT of wheat during 14/15, up from 3.0-3.5MMT in 13/14.  Just when US prospects felt on the rise related to the EU feed wheat situation, the Black Sea appears ready to squash those ideas.  US wheat exports were increased 25mbu, which one can go either way on.  The US wheat crop is probably not done going up if the ND harvest can be reaped without complications.  Yields look very strong early.

Soybeans traded weakly on the increased yield estimate from the USDA, who bumped the national average yield to 45.4bpa from 45.2bpa, but slightly below the average trade estimate of 45.6bpa.  Still this pushed supply up 16mbu from the last report, which the USDA didn’t increase demand to account for, raising ending stocks by 15mbu to 430mbu.  I take a little bit of issue with this considering soybean demand has outperformed the USDA estimates early in the year almost every year for the last 5-years.  In addition, we have a record export deck currently on for the 14/15, and probably more importantly, a record soymeal export deck by 250% which will require more domestic crushing.  It’s a bit early to write off the soybean market just yet, but if the USDA proves correct with their yield assumption, and demand forecasts, then November soybeans at $10.60 are probably overpriced by a good margin.  The tech outlook for November soybeans remains a negative one with lows breached on yesterday’s sell off, although we recovered above those levels to close the day.  Demand is pumping, but the bears insist national average yields are still on the rise, and today there is nothing in forecast to suggest otherwise.

Weekly ethanol data out at 9:30am.

 

 

Bottom Line: The market responded to record national yield estimates fairly well yesterday, and today’s price action suggests we are fairly priced in the near-term.  However, there are cracks in demand that could become larger based on current fundamentals.  Bears still feel in control, but downside prospects look a lot less certain in grains than they did 10-days ago.  The market is finding out how difficult it is to raise the national average yield on the backs of just IA and IL.

 

Good Luck Today.

 

Corn Ear Weight 8-12

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

8/12/2014 Morning Comments

Good Morning,

 

 

Report Day.

 

Outside Markets as of 5:55am: Dollar Index up 0.1950 at 81.6610; Euro down 0.00430 at 1.33410; S&P’s are up 4.25 at 1936.75; Dow futures are up 28.00 at 16,542.00; 10-yr futures are down 0.05%; The Nikkei closed up 0.20% at 15,161.31; The DAX is down 0.26% at 9,156.86; The IBEX-35 is up 0.72% at 10,266.90; Gold is up $1.60 at $1312.10; Copper is up $1.05 at $318.50; Crude Oil is down $0.78 at $97.30; Heating Oil is down $0.0151 at$2.8641; Paris Milling Wheat is down €1.25 at €171.00/MT.

Russia is sending humanitarian aid into eastern Ukraine to help pro-Russian separatists, but has promised it isn’t an attempt to move troops into Ukraine.  The modern-day Trojan horse?  In Europe, the ZEW Center for European Economic Research released their index of investor confidence which dropped to 8.6 in August from 27.1 in July and vs. a forecast of 17.  The gauge has slipped every month since hitting a seven-year high in December.  US oil production has fallen in two of the last three reporting weeks, but is still just below the 27-3/4 year high of 8.592 million bpd recorded during the week of July 11th.  The EIA is currently forecasting US oil production in 2014 will rise to an average of 8.46 million bpd, up 13.7% from the 2013 average of 7.44 million bpd.  2015 is forecasted to rise 9.7% to 9.28 million bpd.

Wide open Midwest radar this morning ahead of the next chance of moisture in the WCB Thursday into Friday.  7-day forecasted precip maps are putting moisture into the central/western corn belt, but the models this morning are much drier than previously thought.  Over the last 5-7 days, however, solid rains were witnessed in parts of NE/KS/IA/IL/MO.  Still, notable moisture deficits remain across the WCB and Northern Plains.  Were it not for below normal temps witnessed throughout July and to-date in August, crop stress would be more than evident.  As an example, when taking a look at the 10 reporting stations in IA during the July 1-Aug 9 time frame, only three have shown over 100% of normal precip. Seven are below 75% and three are below 50%.  In MN, all eight stations are below 100% with six below 50%.  Similar conditions are witnessed in MO, WI and ND.  The 30-day % of normal precip from NOAA is below.

 

Mostly lower markets as we find ourselves inside 5-hours from the August WASDE report.  The pre-report expectations have been in the market for the better part of a week now, and enough analysis has been shared to bore even the most ardent market guru.  The simple fact of today’s report comes down to how aggressive the USDA wants to get in upping both the corn and soybean national yield projections, and therefore production estimates, on the August report as opposed to waiting for subsequent reports for a clearer picture.  Condition ratings would suggest notable yield bumps for both corn and soybeans, but the history of the August report would suggest otherwise.  Still, weather to-date has been mostly favorable, there is nothing threatening 15-days out, and the US farmer remains undersold on both crops.  The surprise on today’s report would be a bullish yield guess, but long-term, our markets still look to be in pretty solid downtrends.  Normal ‘big-crop’ years see lows posted during harvest with rising markets once demand picks up.  That seasonal tendency still looks to be in place on August 12th.

First on corn, the average market guess for national yield is 170.1bpa with a production of 14.253bbu.  It’s worth pointing out, however, the average trade guess has been above the USDA the last three years in a row.  Last year was the most notable miss with the average trade guess coming in 242mbu above the USDA, while 2012 and 2011 saw 192 and 169mbu overestimations, respectively.  2004-2010 saw the USDA come in above the average trade guess, but recent history would suggest pre-report estimates might be a bit frothy.  A 170.1bpa national yield would be about 6% above-trend which is well within the realm of possibilities considering 2009 was 7% above trend and 2004 was 13% above trend.  13/14 demand should see ethanol usage raised, while 14/15 demand will likely change in the direction of the yield change.

On soybeans, the market is looking for a national yield guess of 45.6bpa vs. 45.2bpa in July with a national production of 3.823bbu.  The overestimation by the trade on the August report has been even more pronounced in soybeans than in corn with the average analyst estimate being higher than the USDA 12 of the last 13 years with the only underestimation coming in 2010.  The reason for this is obvious as August weather is the main determining factor in soybean yields, and up to the August WASDE we’ve only seen 1/3 of the entire month’s weather.  While yield will take the driver’s seat, 13/14 demand will be in focus as both crush and exports have the potential to rise further, although the record soybean imports of 20.9mbu during June will temper enthusiasm.

The ‘other spring’ wheat production estimate will receive the most focus on today’s report with conditions suggesting an increase in production over July.  The average trade guess for other-spring wheat production is 579mbu vs. 565mbu in July, and based on anecdotal reports, no reason to think otherwise.  The average trade guess has been above the USDA in four of the last five years, for what it’s worth.  The US winter wheat crop should see minimal revisions with harvest essentially complete.  The other data point in focus for wheat markets will be Russian wheat production, which should increase 4-6MMT from the USDA’s current 52MMT guess.  Also of interest will be how the USDA handles the current feed wheat event in Europe.  Corn imports for the EU should drop markedly, but wheat exports could also be curtailed allowing Black Sea prospects to rise.  The French crop is 92% harvested.

Crop conditions didn’t hold any notable surprises last night with corn conditions essentially unchanged while soybean conditions declined 1% to 70% G/E.  Still the national soybean crop is rated as the second highest since 1994.  Spring wheat conditions remain solid, remaining unchanged despite the seasonal tendency to decline as the year progresses.  This likely reflects rising optimism on yields with 70% rated G/E, the second highest ranking for mid-August since 1986.  Winter wheat harvest is essentially complete at 95% harvested nationally.

One quick note on spreads, worth pointing out the strength in Chicago wheat spreads but the continued weakness in corn spreads.  The CU/CZ and CZ/CH have put in contract lows nearly every day for the better part of 10-days, while Chicago wheat spreads have been on a tear since carving out a bottom in late-July.  This likely reflects growing crop prospects on corn, and plentiful stocks of old crop, while the market adjusts to the European feed wheat situation via the Chicago wheat market.  If the European feed wheat event is as dire as forecast, deliverable supplies of both SRW and HRW could come in high demand.  Given they are 10-40% below a year ago, it raises the stakes should those supplies be needed.

 

Bottom Line: weaker markets heading into the reports, but all-bets off at 11:00:01.  The only question is whether the market will be satisfied with today’s yield increases on corn, and whether the USDA is comfortable moving a record soybean yield higher given the drier conditions as of late.  Demand estimates will be in focus as well, but not the market driver they will be later on in the year.  Gird your loins and strap is for what should be a volatile few minutes post-report.

 

Good Luck Today.

 

AHPS 8-12

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

8/7/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:00am: Dollar Index up 0.0210 at 81.4700; Euro is down 0.00010 at 1.33780; S&P’s are up 3.25 at 1918.00; Dow futures are up 19.00 at 16,414.00; 10-yr futures are up 0.11%; The Nikkei closed up 0.48% at 15,232.37; The DAX is down 0.15% at 9,116.02; IBEX-35 is down 0.63% at 10,181.80; The Russian MICEX is down 1.47% at 1,315.04; Gold is down $2.740 at $1305.50; Copper is up $0.25 at $316.85; Crude Oil is down $0.29 at $96.63; Heating Oil is down $0.0051 at $2.8710; Paris Milling Wheat is down €1.25 at €177.00/MT.

The latest move in the Russia/Ukraine saga came this morning with Russia banning all imports of food from the United States and all fruit and vegetables from Europe as a sweeping response to Western sanctions imposed over its support for rebels in Ukraine.  This will obviously impact Russian consumers who rely on the cheaper food imports from the West, and the Russian stock market is reacting accordingly.  Russia is a notable importer of poultry from the US, and could impact margins for those producers.  In the US today, unemployment claims are expected to increase 3,000 claims to 305,000 after last week’s 23,000 claim gain.  Also, June US consumer credit is expected to show another strong increase of $18.700 billion, close to May’s increase of $19.602 billion.  The increases continue to be tied mostly to student and vehicle loans.

Heavy rains moving across MO and S-IL this morning, continuing the million-dollar rains slated for the corn belt.  Since Monday, there have been decent rains across SE-SD/W-IA/NW-MO with general rains of 1.0” and localized totals as high as 5-6.00”.  MO will see more rain this morning before the systems push into IL/IN.  It’s beyond my abilities to assess whether these rains have lived up to the coverage amounts forecast, although E-SD/E-ND/S-MN could be called a bust in many areas.  The WCB will have more opportunities this weekend for rain, but the Northern Plains will remain mostly dry the next 5-days.  The main corn belt region will stay well watered with below normal temps, so shouldn’t be much left for the bulls after this week.  Extended maps remain conducive for developing crops.

 

Weaker Ag markets this morning as wheat takes a breather from yesterday’s sharp rally, while soybeans stabilize and corn muddles in recent ranges.  Rain totals are living up to the forecast in many areas, while others missed the rains entirely.  On the whole, however, it would appear weather remains supportive to maintaining or growing national yield prospects on both corn and soybeans.  The average trade guesses for next Tuesday’s WASDE report have been released and analysts are looking for a bump in the national corn yield to 170.2bpa vs. 165.3bpa previously, while soybeans are forecast to rise modestly to 45.5bpa from 45.2bpa.  At current price levels, December corn seems to already be trading a 170bpa yield, but soybeans seem to be retaining a bit more risk premium until more August weather is experienced.  Wheat remains a quality vs. feed wheat determining process.

One quick note on Russia banning food imports from the US, it’s worth noting that during the 13/14 marketing year, Russia took 449,670MT of US soybeans, or roughly 16.5mbu.  The media reports aren’t clear how far reaching the sanctions are, or what’s included with said sanctions, but it never hurts to bring the sanctions down to a level we’re used to working with.  At current, Russia has no commodity purchases on for the 14/15 marketing year.  On a similar note, US Census June soybean imports were released yesterday during the session which showed a record level of imports at 20.9mbu.  Through 10-months, we’ve now imported 59.7mbu, which means imports will have to average 12.7mbu for July and August to reach the USDA’s current estimate of 85mbu, both of which would be records for their respective months.

Weekly ethanol production took a notable slip in the latest reporting week, falling from 954,000bbls/day to 902,000bbls/day, the lowest weekly total in 13-weeks.  Despite the drop in production, the USDA’s current ethanol demand for corn estimate of 5.075bbu is still way too low and is likely to be increased on Tuesday’s report.  Stocks fell last week by 327,000bbls to 18.260 million gallons despite the drop in production, but remain seasonably high.  Importantly, the EIA data also showed weekly gasoline demand jumping to 9.359 million barrels per day, the highest weekly level in more than three years going back to May 2011.  Along with strong operating margins currently being attained by ethanol plants should make the drop in weekly production short-lived.

Reverting to our wheat discussion yesterday, some more light has been shed on the contract specifications of Paris MATIF Milling Wheat.  Remember the ongoing discussion by traders in Europe as to the exact quality specs for the Paris contract given the glut of feed wheat likely in this year’s crop.  End users want certainty if they stop the Paris contract, they will attain milling grade wheat.  This week, warehousemen and traders met to discuss the aforementioned quality specs.  According to the Reuters article released this morning, Socomac and Senalia, the operators of the two French delivery warehouses will both apply requirements for Hagberg falling numbers and protein content for the 14/15 marketing year.  Both warehouse companies will apply a standard 220 for Hagberg, with a tolerance to 170, and a protein content of 10.5%.  To an untrained milling mind like my own, I’m not sure what quality specs MENA importers require, but this at least gives a bit more clarity on the situation.  What appeared to be a dismal situation for US wheat exports, could end up being a half ways decent year depending on quality pull.

Another note on wheat, deliverable stocks of what released each Tuesday proved interesting.  Deliverable stocks of SRW in delivery warehouses as of August 1st totaled 64.009mbu, up from 62.504mbu last week but down from 73.164mbu last year at this time.  SRW harvest is essentially complete for all SRW states except Michigan.  On HRW, deliverable stocks totaled 50.695mbu vs. 49.869mbu last week and the 88.167mbu last year at this time.  Again, with HRW harvest complete in KS, stocks are down over 40% from a year ago.  Neither of these statistics are bullish in a of themselves, but having lower deliverable stocks puts less grain in the hands of the commercials and therefore able to satiate demand in short-order.  Make no mistake, this doesn’t mean is going to rally, but could keep board spreads tighter and is worth keeping track of as the marketing year progresses, especially in regards to quality.

Export sales at 7:30am this morning.

 

Bottom Line:  A bit softer tone to markets this morning as we consolidate the recent grain gains, and wait for further developments out of the Black Sea.  Volume should drop off notably in the ramp up to the Tuesday reports, and after Tuesday we will be able to reassess supply and demand.  Wheat charts have bottomed, but the jury is still out on soybeans whether charts have bottomed or are merely consolidating ahead of further losses.  Both options are possible at this point.  Readjust marketing objectives early and often.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

8/6/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:30am: Dollar Index up 0.3480 at 81.6760; Euro down 0.00320 at 1.33420; S&P’s down 5.25 at 1907.75; Dow futures are down 48.00 at 16,318.00; 10-yr futures are up 0.20%; The Nikkei closed down 1.05% at 15,159.79; The DAX is down 1.34% at 9,066.30; The IBEX-35 is down 1.79% at 10,168.30; Gold is up $5.50 at $1290.80; Copper is down $3.40 at $317.05; Crude Oil is up $0.36 at $97.74; Heating Oil is up $0.0116 at $2.8585; Paris Milling Wheat is up €1.50 at €176.25/MT.

Global equity markets are on the slide this morning as the Russia/Ukraine issue became thrust back on to the spotlight with Russian President Vladimir Putin amassing troops near the Ukrainian border.  Russia has assembled 45,000 soldier, 160 tanks and as many as 1,360 armored vehicles according to a Ukrainian military official.  The events are causing the Dollar Index to rise to fresh 11-month highs, a negative influence towards commodities.  September 2013 highs near 82.67 are really the only thing in the way of the Dollar Index pushing to July 2013 highs of 84.75, which were the highest going back to mid-2010.  E-mini S&P’s are trading near their lowest level since June, and if the poor equity performance continues, a minor rotation into commodities could start to happen.  Lots of conjecture at this point.

Moisture moving across the WCB and Northern Plains this morning, although moisture since Monday has been much more isolated than the wide-sweeping rains forecasters have been calling for.  Rainfall since Monday is shown in the map below, and other than a band of showers from C-SD to SW-IA and a portion of SW-ND, the rains haven’t been nearly as heavy as advertised.  More precip will accumulate this morning, but the storm track will push south and east into tomorrow and the weekend.  The 3-day forecasted precip shows the entire state of MO receiving up to 2.00”, and similar totals in S-IL.  IA looks as though it will get the rains it needs to keep bears happy, but at the very least extended maps from NOAA show below normal temps persisting through August 20th.  Nothing threatening enough to knock this crop off its current trajectory.

 

Mixed markets this morning with a weaker soy complex, and firmer grains.  Soybeans seem to be finding some follow through pressure after yesterday’s losses, but more wait and see on rain gauge totals is also at work.  In the grains, it’s looking more and more likely the downside momentum is escaping and bottoming action is occurring.  Given the yield guesses flying around the market, it would appear December corn is actually fairly priced assuming a 170-172bpa national yield.  Price will have to confirm this, as will the USDA on the August 12th WASDE report, but the urgency by the funds to pile into the short side of our markets doesn’t seem as strong as several weeks ago.  Wheat trades like the European feed wheat situation is worse than originally feared, and the escalating tension in the Black Sea isn’t  hurting upside momentum.

While the rain might be commanding the majority of the headlines this morning, there are a lot of moving parts to keep track of in the wheat market.  The Black Sea tension aside, quality concerns continue to be a major sticking point in several exporting regions around the globe.  While the French and German situation has been well-discussed, this morning Reuters is reporting that Ukraine is set to produce more feed wheat and less milling quality wheat thanks to rain impacting wheat quality.  While European wheat futures are higher this morning, taking a look at spreads might tell one more than anything.  For starters, the Paris Milling Wheat/UK London Feed Wheat spread is pushing to new highs for the move and the highest levels since May of 2013 at $27.19/MT.  In addition, US wheat prices are gaining on European wheat prices in the search for quality.  The Paris/US-SRW spread is sitting at $31.32/MT this morning, right near the lowest level since June.  While technically US wheat prices are becoming ‘less-competitive’ on the futures level, quality can and is inelastic when it comes to demand.  The proof will lie with continued export demand like witnessed last week.

The real impact of the Ukrainian/European feed wheat event could be felt on US and competing nation corn exports as the feed grain looks for a home.

Domestically, wheat basis has been especially volatile as harvest moves north and quality is assessed.  To wit, the spot floor at the MGEX watched 14.0% protein jump 40c to +200/220U while 15.0% fell 105c to +275/400U.  These moves are assuredly based on rail performance, but there isn’t much certainty on the protein content of this year’s HRS crop given harvest just getting started in SD.  14.0% pro a week ago was trading at +200/250U, but has been volatile.  HRW proteins witnessed a decent downdraft yesterday as well with 12.0% off 25c to +100/110U.  Keeping abreast of basis moves, both quality and transportation related, could prove the difference between profitable sales and unprofitable sales this marketing year.

Technically, charts are also looking more favorable with overnight price action taking out the July 17th corrective highs.  September Chicago wheat is trading around $5.57 this morning, but put in a high of $5.65 earlier last night.  Retaining strength above $5.61 will be crucial to keeping legs underneath this move.  With this rally, however, it does look as though the bullish divergence in daily momentum has been confirmed.  The 50-day moving average is resting at $5.73, and trade above that level could hit buy signals for trend-following funds, especially those with massive short positions on as indicated by the most recent Commitments of Traders Data.  The short position in wheat is much more extreme than that in soybeans or corn, and needs to be paid attention to as this situation unfolds.

 

Bottom Line:  Wheat is the darling today, but usually relinquishes that role to corn or soybeans and most likely will over the next several weeks.  Rainfall this week will be the ultimate driver of soybean price action leading up to the August WASDE, even though demand continues to run abated.  Corn has lost downside momentum, but doesn’t mean it’s set for a major move higher either.  Continue to watch cash and spread action for short-term signals, but the market is most concerned with finding out the yield number on our corn and soybean crops.

 

Good Luck Today.

 

RFC 8-6

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

Good Morning,

 

 

Outside Markets as of 6:05am: Dollar Index up 0.1270 at 81.4550; Euro down 0.00320 at 1.33890; S&P’s are down 3.50 at 1928.50; Dow futures are down 20.00 at 16,466.00; 10-yr futures are down 0.01%; The Nikkei closed down 1.00% at 15,320.31; The DAX is up 0.51% at 9,201.28; The IBEX-35 is down 0.21% at 10,473.70; Gold is up $2.90 at $1291.80; Copper is down $0.60 at $323.80; Crude Oil is up $0.26 at $98.55; Heating Oil is up $0.0004 at $2.8716; Paris Milling Wheat is down €0.25 at €173.00/MT.

Mixed to weaker equity markets this morning as investors are still trying to determine what last week’s losses on US bourses mean, and economic data this week hasn’t been rosy either.  The HSBC index of Chinese service businesses activity fell to 50.0 in July from 53.1 the month pervious, the lowest rate since November 2005.  The Euro-area Purchasing Managers Index rose to 54.2 from 52.8 in June, but below the 54.4 published on July 24th.  Analysts said the data points to euro-zone GDP growing at a quarterly rate of just 0.4%.  European Central Bank officials are expected to leave the benchmark rate at a record low of 0.15% when meeting in Frankfurt this week.

Scattered storms across the central and western corn belt this morning with the main precip event expected to begin later today in earnest.  Precip will fall across a large swath of SD later today and into tonight leaving a general 0.50-1.00” across much of the state before moving into IA where totals are expected to be heavier.  Rainfall continues expanding into IA/MO/IL the next 3-days with totals over the period jumping as high as 3.5” in NW-IA.  All told, heavy rainfall is expected the next week over dry portions of the WCB.  These rains will be crucial to achieving record soybean yields nationally.  NOAA extended maps keep temps normal/below, while precip stays normal/above east of the MS-River, but below normal west of the MO-River.  Hurry up and wait on the rain totals.

 

Weaker Ag markets this morning in what looks like a “Turnaround Tuesday,” as near-term forecasts look like they are going to verify with rainfall for the driest portions of the WCB and Northern Plains.  Yesterday’s rally, especially in the soybean complex, felt like traders wanted to see rain in the gauge before signing off on a record national yield.  Today, it feels like the forecasts are too near-at-hand to ignore, and if the rainfall comes through, record national yields could be realized.  That said, the pain-train that has been the corn and wheat markets the last few weeks seems as though it is at least slowing down if not bottoming out altogether as wheat harvest pushes closer to completion, and the market becomes more comfortable that the balance sheet is already using a 170bpa+ national yield.  More and more analysts continue to suggest a 170bpa national corn yield, and USDA demand assumptions, are consistent with $3.60-3.70 December corn.  There is no denying a large US corn crop, but whether the eventual yield is 165 or 170 or 175 might not matter as much as how this crop is handled along with still large old crop inventories on farm and at the commercial elevator.

Crop conditions out last evening were about as expected with the corn crop down 2% to 73%, but still the best conditions in 10-years.  The crop is 90% silked vs. 88% average, and completed pollination in one of the most ideal weather scenarios most can remember.  36% of the crop is doughing nationally vs. 29% average which will help squelch late-crop fears. National soybean conditions were unchanged at 71% vs. expectations for a small decline.  Conditions remain the third best since 1986 with 85% of the crop blooming and 57% of the crop setting pods vs. 48% average.  HRS conditions were unchanged at 70% vs.  68% last year, while winter wheat harvest progress was pegged at 90% complete vs. 85% average.

While a day late today given my absence from the market, still some interesting data points in Friday’s COT report worth sharing.  First off, funds are finally starting to flex their might with a short position in corn, with the latest tally showing them short -20,554 contracts, the largest short since February 18th.  Bullish sentiment by funds on corn is now at 48.33%.  Nothing overt from the commercial trenches, so it looks like trend-following funds are keeping a level head about pursuing lower corn prices.  Soybeans finally saw a reversal in recent trends with funds paring back their net short for the first time in 5-weeks, taking their net short position to -53,266 contracts, up 12,816 from the week before.  Commercials remain net long the market, but selling was witnessed by the Gross Commercial Long after several weeks of buying.  This could have coincided with the big string of export sales which might slowly be coming to a close after world importers took a big lick of soybeans.  Funds need a reason to cover their existing short position to make another leg higher in soybeans, and if the rains verify, hard to see what that might be.

Nothing outrageous in wheat other than funds now have a net short position in Chicago wheat of -88,129 contracts, the largest since February 4th.  End users of wheat have also been buying quite consistently as of late, signs of a possible low in the short-term.  Lastly on commodities, the aggregate large spec position across corn, soybeans, wheat, KC wheat, soyoil, lean hogs, live cattle, feeder cattle, cotton, sugar, coffee and cocoa is down to 57,958 contracts net long, the smallest net long across these markets since January 28th, 2014.  Funds don’t spend a great deal of time with this aggregate position below 50% on the bullish sentiment reading, and right now it’s sitting at 51.2%.  Always have to stay on top of their position.

More and more chatter about the composition of feed wheat in the European harvest this year, and how it will affect global trade flows.  The increased export interest in US wheat is probably directly related to said event.  Concerns now become how to treat Paris Milling Wheat is the crop in the field, and eventually in commercial warehouses, isn’t milling wheat?  Currently, the spread between Paris Milling Wheat and UK London feed wheat is trading at $25.99/MT, right near the highest levels of the last year.  After a spike low last week in the UK fed wheat/Paris Corn spread, that relationship is trading at -$8.61/MT this morning.  Worth noting in regards to Paris Wheat, price showed a major spike low Friday to print fresh contract lows before recovering with a key reversal.  It did so with the second highest volume since March 3rd.  Possible lows in?

Minneapolis spot floor premiums remain stubbornly high with 15.0% a bit softer yesterday by 30-35c, but still quoted +380/400U.  14.0% were quoted at +160/220U, making the spread between the two classes 44c per 1/5th.  KC proteins were a bit softer yesterday, down 5c for all grades, and putting 12.0% at +125/135U.  As expected, KW/MW is beginning to follow its seasonal pattern of KW gaining on MW into HRS harvest.  With crop prospects looking solid, KW/MW probably heads back toward -40.0c basis the U and Z contracts.

 

Bottom Line: Lower markets today as we await the rainfall event in the WCB.  This moisture could literally make or break the prospect of a record national soybean yield, so it’s importance can’t be highlighted enough.  Otherwise, we are in ramp-up mode to the August WASDE which is expected to show a national corn yield of 170bpa+.  There isn’t really much one can use to argue against such a yield, at least not at this point.  Grains feel like the downside momentum has waned, but it’s all contingent on how big these crops actually get.

 

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

 

 

 

 

7/31/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 5:55am: Dollar Index up 0.0450 at 81.4770; Euro down 0.00060 at 1.33870; S&P’s are down 11.25 at 1953.50; Dow futures are down 86.00 at 16,735.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.16% at 15,620.77; The DAX is down 0.92% at 9,505.87; The IBEX-35 is down 1.77% at 10,744.10; Gold down $0.10 at $1296.80; Copper unchanged at $324.15; Crude Oil is down $0.72 at $99.55; Heating Oil down $0.0117 at $2.8852; Paris Milling Wheat down €2.75 at €172.75/MT.

Europe is leading global shares lower this morning as fresh fears about Portuguese lender Banco Espirito Santa crop up ahead of tomorrow’s unemployment report in the US.  BES shares sank 40% after they reopened after a two-hour trading suspension earlier this morning following the company reporting a record net loss for the second quarter.  Other companies also reported weak quarterly earnings in Europe, including German companies Adidas and Deutsche Lufthansa.  Also rattling companies this morning is news Argentina will default on $29 billion worth of bong payments after missing interest payments of $539 million yesterday.  51 companies in the S&P 500 report earnings today, and unemployment claims are expected to show a 16,000 claim gain to 300,000.  Last week’s decline in claims to 284,000 dropped claims to the lowest in 8-1/2 years, which means the pace of layoffs is the lowest since February 2006.  Market still looking for 231,000 jobs added during the month of July on tomorrow’s unemployment report.

More rainfall across the southern plains this morning with a mostly dry Midwest.  The latest models from NOAA this morning keep things mainly dry the next 5-days, with the advertised moisture being pushed back until mid-week next week.  In fact, TX/OK/KS/MO/NE/IA aren’t expected to see anything, with only light chances for the Northern Plains and WCB.  The much awaited rainfall has been pushed to Wednesday/Thursday of next week with decent accumulation expected in most of IA/S-MN/E-SD/E-NE.  This will still leave plenty of areas dry for the month of July and heading into August.  Extended maps continue to get gradually better for the WCB and Northern Plains in the 6-10, but no game changer this morning.  Temperatures are still expected to be below normal with moisture above normal for all areas except ND/MN/SD/N-IA.

 

Slightly weaker markets to begin the day today, although the real weakness is being witnessed in Paris Milling Wheat which is down 1.71% this morning. Compounding this weakness is the fact the Euro is a tad weaker this morning which should be supportive, but charts point toward the milling wheat contract heading for June 2009 corrective high support near €165/MT.  Solid corrections are being witnessed against US wheat contracts this morning, and UK London Feed Wheat is also down over 1.70%.  In addition, the London feed wheat/Paris Corn spread is making new lows for the move down to $11.65/MT this morning, the lowest level since July 2013.  Based on the aggressive offers out of the Black Sea, and pressure in Parisian markets, it would appear global wheat crops aren’t done getting larger.  US hard wheat contracts are probably in good company in that category as well.

Row crops also continue to trade weakly, led by soybeans as the market reacts to the latest forecasts calling for rain in the WCB/Northern Plains.  If the forecasts verify, and the WCB receives at least some moisture, the below normal temps should ensure a favorable pod-set.  Commodity Weather Group released some preliminary data yesterday on the month of July, showing it was the 5th coolest July since 1895, while moisture wise it was between the 14th-23rd driest since that same year.  This makes follow up August rains all the more critical to developing soybeans.  Adding a wrinkle to things it’s also worth pointing out ahead of the August WASDE report that the average trade guess on soybeans has overestimated soybean production on the August report in 11 of the last 12 years, and by 113mbu in 2013.  This raises the odds for a bearish surprise in corn, and possibly some stabilization in soybeans.

Rail basis took a hit yesterday with Gulf and PNW soybean rail bids down universally as the Gulf fell 5-6c, and the PNW eased 5c through January.  Didn’t detect any big farmer movement which would coincide with the easing basis, but the topping of premiums likely suggests the string of big export sales for soybeans and meal is slowly coming to a close.  That isn’t to say the recent string of business hasn’t been impressive; it has.  NMY commitments for soybeans and soymeal now stand at records, and should give the USDA ample reason to keep both exports and crush for the 14/15 marketing year at or near record levels.  Rail corn markets also eased yesterday with PNW premiums off 5c for Jul/Aug, while HETX was off 5c to +115U.  Given the uniformity of the weakness in corn and soybeans, this looks transportation related with a possible easing in rail freight costs.  Much more old crop corn to get rid of than old crop soybeans, however, and the month of July has witnessed steady “give-up” selling by farmers who missed the boat or completed a successful pollination period.  Moving the old crop stocks ahead of small grains harvest will be a continued challenge for Northern Plains elevators.

Lots of discussion in recent days about the surge in soymeal exports, the drop in DDGs price, Soymeal/DDGs ratios, China and demand projections for 14/15.  It has been no secret the Chinese don’t intend to be big players in the corn or DDGs import market for 14/15 if they don’t have to be.  With their stance on MIR-162, it is safe to say Chinese import projections will be down substantially.  But the largest buyer of soymeal for the 14/15 marketing year has been the unknown category, leaving a lot of speculation about who the eventual importer might be.  Some theorize China is replacing US-DDGs with US-soymeal, although China’s domestic crushing industry is already overbuilt, so utilizing it even less doesn’t seem to make much sense.  Either way, China seems to be slowly learning what the US Government and US Treasury did in the 1980’s: carrying massive grain inventories is expensive.  Whether they are slowly moving toward a full-blown market based solution by taking the cheapest product, whether that is soybeans or soymeal, or taking short-term action against MIR-162 isn’t certain, but the price relationships of Meal/DDGs will have big consequences this year.

More corn spreads tied or set fresh contract lows yesterday including the CU/CZ, CZ/CH, CK/CN and CU5/CZ5.  Once again, keep an eye on the CZ/CH to move hedges out as it is now paying 70% of full-financial carry with a 2.23% contribution to interest.  Weekly ethanol production came in off 5,000bbls/day to 954,000bbls/day, but still well above the needed level to hit USDA demand projections.  Stocks took a notable jump of 647,000bbls to 18.587 million barrels, the highest stocks levels since March of 2013.  Driving season is over the halfway point, so the big surge in stocks could be more of an issue in coming weeks.  Importantly, because of the rampant pace of ethanol production, it looks likely the USDA will raise ethanol demand for corn on the August WASDE.

 

Bottom Line:  Soybeans are off their lows and pushing firmer as we head into export sales this morning which should show big totals for both soybeans and soymeal.  These are already baked into the market, but will be supportive nonetheless.  The complex really comes down to next week’s rain event and whether totals live up to forecasts.  Corn and wheat don’t seem like they’ve seen the bottom yet as the US corn crop still appears to be getting larger, and global wheat supplies are definitely getting larger.  Funds don’t have a reason to reverse positions at this point.

 

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.