Outside markets as of 6:20am: Dollar Index up 0.1140 at 84.3520; Euro down 0.00310 at 1.29270; S&P’s are down 0.25 at 1984.50; Dow futures are unchanged at 16,922.00; 10-yr futures are up 0.08%; The Nikkei closed up 0.25% at 15,948.29; The DAX is up 0.13% at 9,663.55; Gold is up $4.80 at $1236.30; Copper is down $2.45 at $308.20; Crude Oil is down $0.72 at $91.55; Heating Oil is down $0.0002 at $2.7403; Paris Milling Wheat is down €1.00 at €161.75/MT.
The main focus this week for financial markets will be the Tue/Wed FOMC meeting as investors believe some guidance on when the Fed is likely to raise interest rates in 2015. The US Dollar has obviously been rising on confidence the Fed will in fact raise rates sooner rather than later, so getting some clue as to when will be a highlight of the meeting. In addition, The House of Representatives is expected to approve a continuing spending resolution to keep the US government funded into 2015, past the November elections. Some members of Congress are threatening to filibuster the measure, which could thrust government shutdown ideas onto the market. The US Dollar Index remains right near 14-month highs.
Several systems working across the Midwest and Southern Plains this morning, delaying early harvest efforts in the mid-south. The frost/freeze event came and went without much fan-fare, although reports are coming in of damage to developing corn and soybean crops. This analyst saw freeze damaged corn in W-SD with gray leaves aplenty in the Wall, SD area. Granted, Wall isn’t Des Moines, but isolated damage did occur. No cold air threats are being seen the next 10-days which will alleviate market concern. There is the outside chance of some cool temps by the end of September. Fairly dry in the Midwest the next week with the central belt seeing rain by the end of the week.
A new week, and new test of contract lows as harvest rolls on in southern locations with excellent yield reports continuing. While the market did a fairly good job of pricing in a yield increase on the September USDA report, it feels as though the market is already penciling in a yield bump on the October WASDE, and actively trying to price that in now too. Since the early 80’s, the USDA has increased the national average corn yield 20 times from August to September. Of those 20 years, 17 also saw a further increase on the October WASDE. The difference between those prior years and now is the fact the 4.3bpa increase the USDA made last week was the largest Aug-Sep increase on record, likely taking some of the sting out of future reports. Nonetheless, the propensity is for a further increase in subsequent reports. The only fly in the ointment is FSA acreage which some prominent research firms are still calling 1-2 million acres lower on corn and 1 million lower on soybeans. We will get another update to FSA data tomorrow, which is likely to stir the pot.
While still on corn it is worth taking a look at the demand side of the equation as this may raise just as many concerns. After last week, the USDA is calling total demand 13.605bbu, up from August at 13.435bbu and just a skosh above 13/14 at 13.600bbu. So despite significantly lower prices, the USDA doesn’t see demand expanding much above last year’s numbers, which were up 2.5bbu over 12/13, and 550mbu larger than the highest demanding year of the last 5-years. Expecting demand to slingshot higher in 14/15 looks troubling considering the demand expansion of last year, and the competing supplies found in UKR/BRAZ/ARG. If yield continues to move higher in future reports, which there is a real tendency to do, demand might not be able to eat up the excess, pushing stocks well in excess of the current 2.002bbu level. This would certainly call for a test of the $3.00 level in December corn.
Friday’s COT data kept recent trends in place in soybeans with large specs pushing their net short to a fresh record of -81,567 contracts, which accounts for 7.6% of total open interest. In addition, the gross commercial long bought 24,000 contracts to push his position to 351,399 contracts, also a new record. Open interest also jumped notable by 24,000 contracts, highlighting the trend followers jumping on as prices pushed below $10.00. The trend in soybeans of commercials buying hand over fist and specs selling hand over fist isn’t sustainable. The question is who is going to be right? Quickly, according to the CBOT Legacy report, the commercial hedger net long of 106,130 contracts is now the highest since September of 1997. In corn, Gross Commercial Longs bought corn for the first time in 6-weeks, which may be a sign end users are seeing value at current levels?
Lastly on the COT, the Aggregate Spec position across C,S,W,BO,KW,LH,LC,FC,CT,SB,KC,CC now totals -51,981 contracts, which is a bullish sentiment reading of 48.8%. Both readings are the lowest since August 13th, 2013. The Dollar’s strength is having an impact on investment demand for commodities. If the US Dollar Index sees a breakout above 14-month highs, this will likely exacerbate the outflow of investment dollars from commodities into equities. Equity indices at all-time highs are also pulling dollars away from our space.
Worth touching on wheat basis quickly as the MPLS spot floor continues to impress. On Friday, 14.0% saw offers move sharply higher with that protein level now indicated at +250/600Z. This would compare with +295/350Z a week earlier. 15.0% protein was mostly unchanged to close the week at +605/650Z. Harvest progress should have jumped notably in ND the last week given the weather with harvest progress expected around 70% complete tonight. Protein levels are dropping as harvest advances, but the bushels are not. Color is also said to be a major concern. Also of interest tonight on the crop progress report will be the Durum rating and progress. The frost/freeze event hit the durum belt especially hard last week, with only around 69% of the crop mature as of 9/7 vs. 96% a year ago. On Friday, reports indicated durum bids moved higher by $1.00/bu in some cases to around $14.00-15.00/bu. The durum market is currently forecast to have a carryout of around 22-23% stocks/use. With both the Canadian and US durum belts being impacted, this market could get squirrely in a big hurry. Continue monitoring both of these high pro markets in coming weeks for clues about the latter-half of harvest.
Bottom Line: Mixed/weaker markets look like the order of today with fresh contract lows in the sights for all of our markets. CZ is tracking 2004 fairly closely which eventually put in contract lows of $3.24/bu in December of that year. We’re not all that far away from those levels now. Big crops tend to get bigger, although the frost/freeze may have impacted things more than anticipated. Time will tell. Still plenty of old crop to move before fall harvest.
Good Luck Today.
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.