Outside Markets as of 6:10am: Dollar Index up 0.0250 at 94.1270; Euro down 0.00060 at 1.14130; Brazilian Real down 0.78%; S&P’s are up 2.50 at 2086.50; Dow futures are up 30.00 at 17,962.00; 10-yr futures are down 0.18%; The Nikkei closed down 0.37% at 17,913.36; The DAX is up 0.55% at 10,979.60; The IBEX-35 is up 1.55% at 10,725.50; Gold is up $3.40 at $1224.10; Copper is up $0.30 at $260.50; Crude Oil is up $0.64 at $51.85; Heating Oil is up $0.0092 at $1.9229; Paris Milling Wheat is up €0.50 at €185.00/MT.
European equities rallied to near 7-yr highs this morning on better than expected economic data as well as hope for a compromise over the Greek debt situation. The Eurozone grew 0.3% between Q3 and Q4 of 2014, slightly better than the 0.2% expected. Growth was led by its largest member, Germany, who saw q/q growth of 0.7%, beating expectations for +0.3%. Greece remains the truant, however, as its new PM argued for a new bailout agreement with fewer austerity demands. Greece is set to start technical negotiations with the European Commission, the ECB and IMF today to determine which parts of the current bailout the Tsipras government will agree to maintain. Major agri-business Bunge watched its shares selloff sharply yesterday after a big miss in Q4-earnings and revenues as volatility in its oilseed business outweighed other gains. Q4 sales in the agribusiness segment, Bunge’s largest by revenue, fell to $10 billion from $12.45 billion a year earlier. Bunge also warned of third-party risk with lower-tier Chinese soybean importers which has added risk to its business overseas. The Baltic Exchange’s main sea freight index slumped to 540 points, a new all-time record low back to January 1985.
NOAA’s extended models continue to come into alignment about the cold-snap next week which is centered over the ECB, but extends all the way to W-TX and W-ND. It’s difficult to guess how much “below normal” temperatures might dip to, but the shade of purple being used on the maps below hasn’t been seen since last fall. Should temps fall to zero or below, snow cover is far from adequate to prevent damage, especially in crops which have broken dormancy in the central and southern plains. States with no snow cover would include NE/KS/OK/TX/MO/AR/TN/KY while only the northern ½ of IL/IN have any snow cover to mention. Widespread damage isn’t expected at this date, but vigilance is warranted considering this is only February 13th, and another 2-months’ worth of frost risk still lies in front of the market.
Better markets so far as we get set to enter the long 3-day weekend with no grain markets until Monday evening. For the week, corn finds itself down 1.5c, soybeans are up 14.25c and wheat is down 5.50c. For being lower on the week, corn and wheat both are merely flagging in more of a consolidative effort than trending higher or lower. Despite the fact we just received a refreshed set of USDA balance sheets for 14/15, it feels as though our markets are ready to begin trading 15/16 already and certainly looking forward to the USDA Outlook Conference next Friday. Weekly demand indicators continue to support all three of our grains, and looking ahead to 15/16 highlights the need for solid corn and wheat conditions to prevent tightening balance sheets. Soybeans are living on borrowed time, but for the time being, it looks as though they are quite comfortable borrowing.
Taking a quick look at export sales, most everything came in above expectations, including wheat at 15.0mbu vs. the 9.0mbu needed weekly thanks to the recently revised export forecast. In the by-class breakdown, HRW led sales with 4.8mbu, but as impressive were the 3.6mbu worth of sales from White Wheat. There is a lot of concern about the carryout level of SWW, and for good reason. Corn sales were solid at 39.5mbu vs. the 17.1mbu needed weekly. Total commitments are down 4% from a year ago while the USDA forecast is calling for a 9% y/y reduction. Soybean sales were 27.4mbu, well better than expectations or the 4.9mbu needed weekly to hit the USDA forecast. Total commitments of 1.696bbu now account for 95% of the USDA’s marketing year forecast. How long it takes Brazil to start shipping meaningful tonnage will hold the answer to the US soybean shipping season.
As mentioned above, the 15/16 corn balance sheet seems to be turning more interesting all the time. Reports last night suggested Ukraine’s Oct-Jan seed corn imports were down 42% from a year ago, which suggests a sizable cut in corn production for the coming year. Given 2014’s 28.5MMT production, one could reasonably suggest a crop in the 20-24MMT area which would be off 15-25%. Obviously getting seed corn imports has been a struggle for farmers due to the Ukrainian Hryvnia dropping to all-time record lows, which should also make fertilizer procurement difficult. Ukraine exported 20.0MMT of maize in 2013/14 and is expected to export 18.0MMT in 2014/15. A 25% reduction in exports could mean a 150mbu shortfall in global supply. Add in the likelihood of smaller corn crops in both EU and Brazil next year, and global exporter supplies could see a notable reduction. If the USDA Outlook Conference releases acreage around 88-89 million acres for 15/16, expect CZ15 to receive a fair amount of support around $3.90-4.00 until planting and pollination have been deemed successful.
Wheat spreads were firm overnight, although off slightly heading into the day session. WH/WK rallied to +3.00c yesterday, the highest trade since 4/1/2014. The KWH/KWK hit -0.75c, the firmest trade since 12/1, and the MWH/MWK hit -0.50c for the third session in a row, tying highs since 5/15/2014. H/K spreads are rallying into FND, just the way Z/H spreads did, which should make one cautious about avoiding the March rally by selling wheat in May. The deliverable grade/milling grade supply of wheat in the US is in strong hands, which is unwilling to part with said stem until inverses really get painful. Remember this point when making hedge placement decisions. KCBT protein scales firmed again yesterday for 12.0-14.0% pro with 12’s and 13’s at +100/110H. Compare this with +90/100H and +85/95H, respectively a week ago. Call MGEX 14’s +170H vs. +135H a week ago. Shouldn’t be a lot of resolve in betting against futures when both basis and spreads are rallying in tandem.
Bottom Line: Our markets are mixed on the week, so choppy trade heading into the weekend wouldn’t surprise. Keep in mind, depending on how the Brazilian Real finishes the day, the soy complex could see some hedged pressure from the South American growers ahead of the long-weekend. Grains are slowly generating a story for next year, and the demand signals for 14/15 are proving ample enough. Soybeans still appear to be the market with the most to lose.
Good Luck Today.
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