Outside Markets as of 6:15am: Dollar Index down 0.3560 at 80.2240; Euro up 0.00680 at 1.36310; S&P’s down 0.25 at 1956.75; Dow futures are up 2.00 at 16900.00; 10-yr futures are up 0.29%; The Nikkei closed up 1.62% at 15,361.16; The DAX is up 0.81% at 10,010.49; The IBEX-35 is up 0.95% at 11,218.10; The Russian MICEX is up 0.62% at 1,503.61; Gold is up $9.20 at $1281.90; Copper is up $0.70 at $306.80; Crude Oil is up $0.45 at $106.04; Heating Oil is up $0.0049 at $3.0450; Paris Milling Wheat is up €1.00 at €189.50/MT.
Global equity markets are rallying today after the Fed signaled that US interest rates would remain at record lows until the US economy was seeing a steadily improving job market and modest inflation. Despite the fact the unemployment rate has moved under the original 6.5% target, and equities continue to hit new record highs, Fed chair Yellen said there was no need to raise short-term rates from record lows anytime soon. This has put the US Dollar under heavy pressure, hitting the lowest level since May 27th on the news. Weekly unemployment claims are expected to show a decline of 5,000 to 312,000, reversing last week’s 4,000 claim increase. The Philadelphia Fed index is expected to show a -1.4 point decline to 14.0, adding to the small -1.2 point decline in May.
Shower activity working across MN/IA/WI/IL as well as OK this morning following another night of severe weather, this time in South Dakota and the town of Wessington Springs. As many as 20 homes were either severely damaged, destroyed or uninhabitable after last night’s tornado. Rainfall totals continue to stack up over the water-logged Northern Plains with another 0.25-1.00”, and in some localized areas 3.0”, falling in parts of NE/SD/ND/MN in the last 24 hours. The map below shows the rainfall since Monday. Several areas in SD/MN/IA/WI/NE have seen totals between 3.0-10.0” since the beginning of the week. Pictures of crops standing in water are becoming common, but many crops are benefitting from the current weather pattern. More rain expected the next 3-days, with heaviest amounts where they don’t need it. SE-SD/N-IA/S-MN are slated for another 1.0-2.5” through Sunday. KS/MO/S-IA are expecting rain Sunday-Tuesday with heaviest amounts in E-KS at 2.50”. No big changes to extended maps with the Northern Plains seen getting a stretch of drier weather in the 6-10 and 8-14 which would be welcome.
Green across the screen again this morning led by the wheat market which is tacking on 7-9c as we head into the seven o’clock hour. The bounce in wheat seems to be largely technical in nature after the nearly month long sell off, but concerns are being raised about winter wheat harvest in both the southern plains and Delta. Despite the fact progress is behind normal, ripened wheat is now being hit with rain which can degrade quality. The market’s concern has been expressed through calendar spreads and basis this week with the KWN/KWU pushing to +1.75c yesterday, the highest trade for the contract since May 15th, 2013. High protein spring wheat basis has been improving as well with 14.0% pro up 30-35c yesterday to +235/275N vs +160/180N a week ago. Late yesterday it was reported Brazil has also approved another 1MMT of duty-free non-Mercosur wheat imports through August 15th, 2014, which could be supplied by the US. The aforementioned isn’t enough to reverse the losses sustained in June, but it definitely argues for a near-term bottom which the market seems to be granting. To really turn the technical buying switch on, however, July Chicago wheat would need to see trade above $6.26-6.29. Momentum indicators are indicating a bullish divergence and On-Balance-Volume has bottomed and is rising, both positive signals.
The big surprise in yesterday’s session was the 8:00am announcement of 140,000MT of soybeans being sold to an unknown destination for the 13/14 crop year. This is the kind of business the old crop balance sheet can’t afford to be doing, and many began to think it was a reporting error by the USDA. Whatever the case, FOB Brazilian soybean basis continues to appreciate, lending credence to the idea of an old crop sale. As of last night, spot Brazilian soybean basis was quoted at +35N with August at +75Q vs +8N and +63Q yesterday. A week ago, the spot bid was -25N and August was +42Q. So in a week’s time the spot soybean bid has rallied 60c, or about as much as the futures board has sold off since last Thursday. With the basis rally, imports of Brazilian soybeans should all but stop, and it even raises the question of whether the sales to the US on the books will be executed or routed to another destination? The story in old crop soybeans is far from over.
The second chart below shows the Mississippi River flood forecast for St. Paul. It was reported yesterday barge loading in Savage, MN on the Minnesota River would come to a halt until July 1st due to high water. As one can see from the chart below, moderate flood stage is expected to be hit in downtown St. Paul sometime around June 25th. The current precip forecast will exacerbate the situation, and while Savage, MN isn’t the Illinois River district, it does take available supply off the export market. This should help CN/CU and export premiums hold firm in the near-term. Corn basis as a whole seemed to hold steady to even firm a bit yesterday with PNW corn shuttles bouncing back to +107/108N for JJ.
Weekly ethanol production hit a new record for the weekly data series going back to June 2010 yesterday, highlighting the solid margin structure which exists in that industry. Weekly production of 972,000bbls/day compared with 944,000 the week before and the 899,000 needed to hit the USDA’s current ethanol production forecast. With the past several weekly production figures, the USDA is likely to raise their ethanol demand for corn forecast on the July WASDE assuming no big surprises on the June 1 stocks report. Interestingly, stocks also saw a draw despite the big production jump with weekly stocks declining to 17.850 million barrels, down 572,000 on the week. Weekly gasoline demand also surged higher in the latest week after two weeks of sharp decline, raising the prospect for further stock declines in coming weeks.
Weekly exports sales out later this morning should provide further price guidance for the balance of the week.
Bottom Line: Firmer prices again today as grains bounce from their oversold condition. More and more press being given to the water-logged crops in the north, although many quick to point out for every low spot there are two hillsides. Too early to understand the full impact, but top end acres could be in for both corn and soybeans. Cash markets are trying to pry grain loose from farmer hands to no avail as the price and calendar aren’t enticing anyone to sell just yet. Continue to watch technicals for short-term signals in the ramp up to the June 30th reports.
Good Luck Today.
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