Outside Markets as of 5:45am: Dollar Index up 0.0240 at 80.4940; Euro unchanged at 1.35720; S&P’s are up 0.50 at 1937.00; Dow futures are up 9.00 at 16,783.00; 10-yr futures are unchanged; The Nikkei closed up 0.29% at 14,975.97; The DAX is up 0.14% at 9,898.29; The IBEX-35 is up 0.20% at 11,030.50; The Russian MICEX is down 0.63% at 1,484.46; Gold is down $8.80 at $126.50; Copper is up $1.40 at $305.80; Crude Oil is down $0.62 at $106.28; Heating Oil is down $0.0095 at $2.9884; Paris Milling Wheat is down €0.50 at €187.25/MT.
Very quiet global equity markets overnight as investors await the Federal Reserve’s FOMC decision later this week. Economic data in the US today will include the May CPI which is expected to be up +2.0% y/y and unchanged from April. Inflation statistics are on the upswing, which supports the Fed’s decision to taper. However, the PCE deflator, the Fed’s preferred inflation measure is still well below the Fed’s 2.0% target down at +1.6%. May housing starts out today are expected to show a decline of -3.9% to 1.030 million following the 13.2% surge to 1.072 million in April. Building permits are expected to be down -0.9% to 1.050 million following the +5.9% rise to 1.059 million in April.
Systems moving across IA and the Great Lakes this morning, adding to the nice rainfall totals the past 24 hours in E-SD/S-MN/E-NE/IA/S-WI. Severe weather moved through parts of NE and SE-SD yesterday evening with multiple tornadoes being reported. There continue to be reports of damaged crops in NE by severe weather the past 2-weeks. Another round of storms move through the WCB and N-Plains tomorrow into Thursday and should bring heavy rains to the same areas with localized totals in ND reaching 2.2”. 5 and 7-day forecasted totals keep things wet through the weekend for the majority of the corn belt and southern plains. Major changes for the 6-10 and 8-14 day maps include a drier bias for the WCB and Northern Plains which would be the first in several months Temperatures are expected to remain normal to below, while the ECB keeps above normal precip in place.
Mostly weaker overnight markets led by the soy complex as conditions remain near the best of the last 30-years, despite the fact all old crop demand signals point towards tighter carry-outs. Grain markets are following suit as corn conditions are also near the best in a couple decades, while wheat markets grapple with expanding harvest but concerns over harvest delays and quality downgrades. US wheat remains expensive compared with other exporting nations, and wheat/corn spreads still prevent any sort of wheat feeding program to take place. With the US corn crop developing as well as it is, one only needs to look back to the last record yielding corn crop in 2009/10 to see the impact on wheat demand. This year, all-wheat demand is pegged at 2.121bbu, the lowest since 2009/10 and the third lowest of the last 15-years. Exports in 09/10 were just 879mbu vs the expected 925mbu this year. Production is definitely down from a year ago, but in a couple of months the North American wheat supply will be known and the overpriced status of US wheat will still be impacting our competitiveness.
Crop conditions bounced back higher last night with the corn conditions improving 1pt to 76% G/E, and would be the 2nd highest of the last 23 years behind only 2010. NE, NC and ND all saw sizable declines in G/E ratings, presumably due to excessive water the past week. Conditions improving in MO/TX/KS helped offset. Soybean conditions eased 1pt to 73% G/E vs 64% last year, and would be the 2nd highest of the last 30-years behind 2010. Declines were witnessed in nearly every state except KS/IN/OH/LA which makes it interesting the national rating was only down 1pt. I found it interesting when looking at this year’s condition ratings vs the 5-yr average how much lower the ECB 5-yr averages are compared with the WCB. For instance, the 5-yr average on corn for IL/IN/OH are 60%/60%/66%, respectively vs IA/NE/SD at 83%/75%/84%. The 2012 drought year was obviously more severe in the east, but the same condition spread exists for soybeans as well. Comments about crop conditions out of IL/IN continue to be nothing but excellent, highlighting how good the start is for those in the ECB. National soybean planting progress was pegged at 92% vs 87% last week and 90% average.
Spring wheat conditions improved 1pt to 72% G/E and would compare with 75% for the 5-yr average. Conditions in the main HRS growing belt of SD/ND/MN/MT remain pretty solid, but WA continues to drag the national prospects down with just 24% rated G/E vs the 5-yr average of 65%. Drought has been in place since last fall in WA, and crop prospects are suffering accordingly. Winter wheat conditions were unchanged at 30% G/E, while harvest was reported at 16% vs 20% average. KS/CO has yet to really even register progress while TX/OK are close to the halfway point. Early reports continue to suggest lighter test weight and higher protein so far with Plains Grains, Inc. reporting that of the 40 samples tested so far test weight averaged 59.6lbs/bu vs 59.9 in 2013. Average protein content so far was 14.3% vs the 2013 average of 13.4%.
Yesterday’s NOPA crush proved stronger than pre-report estimates with NOPA members crushing 128.8mbu of soybeans in May vs estimates of 127.0mbu and vs. 122.6mbu in 2013. Crush has been up an average of 8% over the last four months, despite the USDA marketing year forecast calling for an increase of just 0.6%. Based on NOPA data to date, and adjusting for total US census crush, the June-Aug period needs to see crush down 8-9% from a year ago if the USDA’s 1.700bbu target isn’t to be exceeded. This will prove a tall task given crush margins still sitting where they are. If crush isn’t slowed down, it will raise the prospects the 2013 soybean crop was understated, which would be in-keeping with the lower basis levels y/y. The June 1 stocks report will give us a solid clue as to the ‘13 crop size via the residual demand category. A larger 2013 supply might be the only way to get to September 1st.
Further easing in destination rail basis on corn yesterday with the PNW/HETX/CGO all softer than Friday values. The CN/CU certainly looks as though it is coiling for a decent move one direction or the other with overnight trade unchanged at +4.25c. The river is still trading above gross delivery equivalence, which makes owning July futures as a supply source valuable. The US farmer is in no hurry to sell his remaining old crop corn supplies given current prices and the development stage of his crop. Widespread pollination isn’t expected to commence until mid to late July, so the next 30-days could get long for end users of corn. Armed with healthy margins, cash basis should hold steady to firm, and the CN/CU will be a good proxy of that. The SN/SX continues to dance on top of +200.00c, with overnight trade at +201.50c. Demand continues to chug, but there are more and more skeptics emerging about the size of the 2013 crop.
Bottom Line: Better living through lower prices today with superior growing conditions trumping any sort of old crop demand story the bulls want to drum up. The spring love-affair the funds had with commodities seems to slowly be eroding, aside from crude and meats, while weather remains as ideal as one could hope for on June 17th. Without a reason to get the managed money involved on the long side, and without a fresh physical demand impetus, we will be locked in our downward trending ranges. We have to have a fresh bullish input and today we don’t have it.
Good Luck Today.
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