Outside Markets as of 7:00am: Dollar Index up 0.0490 at 87.5800; Euro down 0.00020 at 1.24650; S&P’s are down 7.25 at 2029.25; Dow futures are down 64.00 at 17,505.00; 10-yr futures are up 0.32%; Gold down $2.10 at $1160.90; Copper is up $0.50 at $303.80; Crude Oil is down $0.67 at $77.27; Heating Oil is down $0.0097 at $2.4590; Paris Milling Wheat is up €3.75 at €174.75/MT.
More Russian military equipment moving into Eastern Ukraine this morning, and Ukrainian forces are said to be readying themselves for combat. Currency moves in recent days would certainly warn against a continued deterioration in economic conditions of both countries as the Ukrainian Hryvnia fell to new lows against the Dollar at $15.8817. The Russian Ruble hit $46.39 this week, also a new record low. The IMF has attempted to intervene, but an increasing number of analysts have suggested Ukraine may have to default on its sovereign debts and restructure. The implications would have far-reaching effects, especially to its farming sector. The 30-yr mortgage climbed slightly in the latest week and is now sitting at 4.02%, just up from the 1-1/2 year low set the week of October 24th at 3.92%.
Pockets of flurries around the Midwest, but no concentrated moisture event seen the next 3-days. The next bout of precip should fall as snow beginning Friday into Saturday for the WCB and Central Plains states. Totals are expected to remain fairly light, although heavier totals will be seen in KS where as much as 0.30” of water equivalent is forecast. That snow will be needed given the cold temperatures facing the nation’s winter wheat this week. The image at the bottom of the page shows the minimum temperature forecast for tomorrow morning with below zero expected across the Northern Plains, while single digits get down into KS. 20’s are seen for SRW country. Note the snow cover map shown yesterday with no snow cover for anything south of South Dakota, and no snow cover on anything in the SRW belt as well. Extended maps keep a drier, cooler bias in place the next 15-days.
It’s hard to describe the volatility witnessed in soybeans and soymeal yesterday, let alone try to explain or analyze it. The buying interest has remained through the evening session, however, and the complex is one again leading us higher this morning. There appears to be several elements at work, including Brazilian soybean planting and export expectations out of South America, a speculative community with an interest in getting long soybeans and especially soymeal, government estimates and the aforementioned railroad performance. There is no doubt soybeans and meal are helping to pull grains along for the ride, however, the maps shown the last two days do raise concern about the winter wheat crop in the United States. Along with several other exporting countries being down y/y on production, there are at least a few reasons for wheat to remain elevated. This is still a soy complex show.
For starters yesterday, Brazil’s state forecaster, CONAB, issued their latest Brazilian soybean crop estimate of 90.5MMT, down from 90.6MMT previously. This compares with the USDA’s latest estimate of 94MMT, which is 128mbu larger. Add in the fact Brazilian soybean planting progress released yesterday showed 46% planted vs. 59% last year and 60% average. Progress is picking up markedly, having jumped 24% in the last week alone now that rain has finally started to arrive. Still, however, it isn’t likely that Brazil will have the export offerings in January and February they did last year which allowed them to record export loadings the first 3-months of the year. To be more specific, Brazil exported 222,000MT of soybeans in January, 4.262MMT in February and 7.750MMT in March for a combined total of 12.234MMT. This would compare with 7.45MMT in 2012/13. While some of the improvement was likely infrastructure, it looks as though export offerings will be reduced off of last year during JFM. Using a bit of artistic license, it isn’t difficult to axe 3.0-3.5MMT off of exports out of Brazil which equates to 110-130mbu. This is likely some of the increased strength of the US export program this year.
Before straying from South America too far, it is worth noting Brazilian and Argentine corn plantings which are also running a bit behind schedule. Brazil has planted 66% of their crop as of 11/7 vs. 54% the week before and 85% in 2013. Argentine corn planting progress was estimated at 35% complete vs. 34% the week before, 37% in 2013 and 57% average. Argentina has not begun reporting soybean planting progress, although progress is said to be occurring.
Switching to premiums, soymeal premiums just aren’t breaking which is a large part of the catalyst for higher prices. The Surface Transportation Board will update its weekly railroad performance after the close, and the details will be scrutinized. Still, Gulf offers were pegged at +80Z for Nov/Dec going home last night. This despite the fact South American premiums have dropped $20-25/MT over the last week. The job of spreads in times like these is to rally to the point cash selling takes place and premiums cool. That isn’t happening in the US, but is certainly is in SAM. FOB Brazilian soymeal pellets were pegged at +15/18Z last night vs. +38Z a week ago. Argy pellets were seen at +19Z vs. +29Z a week prior. It still doesn’t work to bring SAM soymeal into the US apparently, because it seems nothing will cool the insatiable demand for meal in the US. The SMZ/SMF is firmer this morning at +18.50, up +2.00.
The last note on the soy complex, it is interesting that the updated readings of the Optimism Index from Sentiment Trader showed soybeans still well in pessimistic territory at 28% despite the $1.70 rally off the lows. The chart below illustrates the still negative light being painted by this sentiment indicator. COT data shows the soybean fund short being covered almost completely as of Friday, and will certainly be covered by this Friday’s data, but for whatever reason, this measure is still reading negatively towards soybeans.
Switching to wheat, and as covered above, the US winter wheat crop is facing the coldest temps of the season without much snow cover in either wheat belt. Winterkill is incredibly difficult to assess until the grain breaks dormancy next winter, but that doesn’t mean people won’t speculate toward the effects. Add in the fact CIF-SRW bids improved 5c yesterday to +105Z for Nov/Dec and the incredible strength witnessed in the WZ/WH spread, and lift under wheat futures isn’t difficult to come by. Funds are short and might be rolling some of their position to March, but index funds are rolling via the GSCI and that would add spread pressure, so simply a roll isn’t explaining the strength. Trade to -2.50c overnight is the highest trade since March 20th, but no big changes to deliverable stocks or cancellations of delivery tickets to mention. There are more vessels showing up in the PNW lineup to load wheat or wheat/combo boats, although this is an ancillary factor. Unlike corn, wheat actually has firmer cash and spreads to its credit, on top of a managed fund short position. This shouldn’t go unnoticed by corn traders.
Lastly, thought it worth pointing out the remaining 44 delivery tickets of ethanol were canceled out of Argo, IL last Friday, leaving zero outstanding. This helps to partially explain the spread strength in ethanol futures, as well as the outright futures appreciation. Ethanol margins remain the best since mid-September and are adding a bit of support under corn futures. Weekly production and stocks will be watched closely this morning.
Bottom Line: LaSalle Street is lined with people who have tried to call a top in soybeans and meal, so I’m not sure one wants to step into that business yet. The trends are up on all applicable scales and until futures and spreads break cash, it looks like the path of least resistance will continue to be up. Winter weather and its effect on wheat will need to be monitored this week, even if damages won’t be clearly assessed for months. Corn has very little driving force right now, and is simply along for the ride.
Good Luck Today.
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