9/15/2014 Morning Comments

Good Morning,

 

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.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

9/11/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.0720 at 84.2730; Euro up 0.00140 at 1.29200; CAD down 0.51%; S&P’s are down 6.25 at 1988.75; Dow futures are down 52.00 at 17,006.00; 10-yr futures are up 0.04%; The Nikkei closed up 0.76% at 15,909.20; The DAX is down 0.04% at 9,696.44; The IBEX-35 is down 0.34% at 10,901.00; Gold is down $2.90 at $1242.40; Copper is down $4.15 at $306.90; Crude Oil  is down $1.20 at $90.47; Heating Oil is down $0.0302 at $2.7233; Paris Milling Wheat is down €1.75 at €165.50/MT.

Mixed to easier equity markets this morning, but crude oil is trading sharply lower with the spot month at the lowest level since May 1st, 2013.  On Wednesday, OPEC revised down its growth forecasts for global crude oil demand in their monthly report.  Money flow into crude oil and other commodities has also been siphoned off, and instead diverted into the much better performing equity markets.  President Obama outlined his strategy for dealing with the terrorist group ISIS in front of the nation last night, choosing a targeted approach with airstrikes.  A ground campaign won’t be part of the strategy, the President said.  Russian natural gas deliveries to Poland dropped by 45% on Wednesday, the third day of decreases, heightening concerns Russia is curtailing gas supplies in response to Western sanctions.  Poland gets 60% of its gas needs from Russia.

A band of showers stretching from E-OK to PA this morning bringing finishing rains to the mid-south, while snow falls across WY/W-SD/MT.  The first bout of cold weather moved into the WCB/Northern Plains this morning, although Friday’s lows are the focus for growers in the US.  Temps’ Friday are expected to get into the low-30’s across MT/ND/SD/MN, but how long and how low are uncertain at this point.  Still nobody talking about a crop killing freeze.  After the current rains move out, the next 7-days are going to be fairly quiet in terms of precip which will be an aid to early harvest efforts in MO/IL et al.  The drier tone will stick around the next 15-days with below normal precip expected through September 24th.  Temperatures will stay on the cool side for the Midwest, but temps are above normal out west.

 

Markets are going to be weaker heading into the 11:00am USDA reports, highlighting trader expectations for expanding crop size.  The general tenor of the market seems to be one in which no matter what the USDA gives us today, market participants are going to assume yields and production get bigger on the October WASDE.  It would appear then that this report is more of an inconvenience than anything, but algos and HFT will still have fun at 11:00am.  The focus on the October WASDE is understandable as that’s when updated FSA acreage will be incorporated as well as objective pod and ear weights.  The latter two items are precisely why big crops get bigger as healthy crops with good potential usually get heavier as the year progresses.  Demand items will take a back seat, although corn bears will have a hard time with demand increasing further to account for increasing supply.  Trade estimates below.

There will be plenty of time to analyze every minute detail of the USDA report after the numbers are released, but there is plenty of activity occurring in basis and spreads to keep us occupied until then.  First, there is no slow down taking place in HRS basis with 15.0% protein climbing another 25-45c yesterday to +645/675Z.  Volume has dropped off slightly with only 143 cars including 2 trains, but the demand for high protein hasn’t.  14.0% was unchanged at +275/350Z.  The spread between 14’s and 15’s on the bid side is now 370c vs. 350c a week ago and 90c a month ago.  Harvest should continue strong the next week in ND/MN/MT, so watching protein spreads the next several weeks will provide a lot of clues as to whether the protein premium is here to stay.  Still no change in high pro HRW with 14.0% unchanged at +140/150Z.

PNW corn bids firmed slightly yesterday with spot trains worth +125/130Z for Sep/Oct.  HETX was also firmer with OND pegged at +115/110/110Z.  PNW soybean bids also firmed for Nov-Jan slots, now bid +197/193/185X.  It’s hard not to take notice of the firmness in soybean calendar spreads with X/F pushing to -6.00c yesterday, the highest level since 7/24, while SF/SH pushed to -5.25c, the highest level since 7/28.  The latter spread is also near the highest levels since June 30th.  The aforementioned, combined with the gigantic commercial long position implies commercials are short an awful lot of soybean basis which is going to have to be bought in by Dec/Jan.  Exporters are clearly counting on the US farmer to turn palms out in Oct/Nov, which he still may do.  If he doesn’t, however, soybean spreads and basis could be in for some sustained strength.

Wheat spreads have been showing their own strength as of late with the WZ/WH trading at -16.5c yesterday, the highest level since May 30th.  The strength in WZ/WH tracked well with the WU/WZ, although inverses aren’t likely.  KWZ/KWH two-days ago was trading close to -5.0c which is the highest levels in a month.  CZ/CH jumped to -12.25c overnight, the highest level since 8/21.  While the aforementioned spread strength isn’t enough to become outright bullish, it makes one pause about continuing to beat down the futures.  Commercials appear to be finding value across our markets at these levels, and our long awaited end user pricing might finally be taking place.  Spread direction after the numbers could provide a lot of clues about trade the next 30-days.  Quickly, MWZ/MWH is the lone spread which looks like it is headed for the basement, trading near the lowest levels since mid-July.

While still on wheat, France Agri-Mer released details about this year’s French wheat crop yesterday.  They said protein levels averaged 11.1% this year vs. 11.2% last year, but only 59% of the crop is good to very good for bread making vs. 95% last year.  Only 46% contains a Hagberg falling number over 220, the level desired by millers, compared with 99% last year.  In Germany, 80% of the wheat crop is considered suitable for milling and 20% for feed, in-line with last year.  The French quality problems are really going to rear their head later in the year when the little bit of milling quality wheat becomes exhausted.  US corn imports to the EU are going to drop off sharply this year, but the US grabbing traditional French export business could be something to watch for.

Other headlines included France reporting a record corn crop, while China continues to trim theirs due to drought.  Ethanol production yesterday rebounded slightly while stocks jumped by 348,000 barrels.

 

 

Bottom Line:  Lower prices into the numbers, but provided the USDA doesn’t throw anything to wild at the market, these trends should continue.  Multi-decade highs in condition ratings, strong anecdotal yield reports and an undersold farmer are limiting any rally attempt.  Lower prices are supposed to spur demand, which is what the USDA is counting on in their balance sheets.  We just desperately need end-users to step up and start pricing or risk even lower prices.  Our last risk to this crop is going to pass Saturday with a slow warm-up.  More after the numbers.

 

Good Luck Today.

 

WASDE Estimates 9-11

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

 

 

9/10/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:05am: Dollar Index down 0.1550 at 84.1230; Euro up 0.00320 at 1.29510; AUD down 0.51% at 0.91440; S&P’s are up 1.75 at 1991.50; Dow futures are up 15.00 at 17,050.00; 10-yr futures are down 0.10%; The Nikkei closed up 0.25% at 15,788.78; The DAX is up 0.03% at 9,713.73; The IBEX-35 is down 0.39% at 10,909.00; Gold is up $5.90 at $1254.40; Copper is down $0.35 at $309.85; Crude Oil is down $0.03 at $92.72; Heating Oil is down $0.0091 at $2.7824; Paris Milling Wheat is down €1.50 at €167.75/MT.

Aside from the Dollar Index correcting slightly, global financial markets are fairly muted on this Wednesday.  The headline grabbing news from yesterday was of course the new product into from Apple with the latest version of the iPhone unveiled as well as the new iWatch.  Essentially, the new iPhone’s have larger screens, along with the latest gadgets to make payments at retailers such as Macy’s and McDonald’s.  Apple finished the day off 0.38% at $97.99/share.  Mortgage activity is expected to get a bounce with 30-year mortgage rates near a 15-month low of 4.10%.  That is 48bp below the 3-1/4 year high of 4.58% posted last summer.  Today’s EIA report is expected to show crude oil production moving near a new 27-3/4 year high, hitting levels not seen since November of 1986.

Large systems moving across the central corn belt this morning, impacting IA/MO/IL/MN/WI/MI with more scattered systems across MT and NE.  Rainfall in the last 24 hours has been heaviest in N-MO and the southern half of IA where localized totals hit 5.0-8.0” plus.  SD and MN also saw decent rains of 0.50-1.00” across eastern growing areas.  The impacted areas this morning will see heaviest rainfall over the next 3-days before the system moves east into IN/MI/OH.  Western SD, WY and S-MT are also in for additional moisture through Saturday.  Extended maps seen softening on the much below normal temps during the 8-14, while moisture drops to below normal for the entire Midwest which will probably be welcome with the onslaught of harvest.

 

Wal-Mart trading at work in the Ag sector this morning with better living through lower prices.  Follow through selling is being witnessed in our space in the ramp up to tomorrow’s USDA report, even as most analysts admit the likelihood of the USDA matching the impressive private crop estimates being floated isn’t very good.  Still, carryouts are set to grow on tomorrow’s report, both in the US and world in regards to wheat.  Managed money continues to add to the short side of these markets, the Dollar Index is near 3-year highs, early yield report from IL/MO and the mid-south are nothing short of outstanding, and the US farmer continues to be undersold on both 13/14 and 14/15 crops.  Bagging seems to continue coming up as the storage plan of choice for both farmers and elevators as harvest looms.  These markets need a major catalyst to stem the slide and recover.  At current we don’t have one.

The weekly margin recap put together by www.rjomrt.com showed end user margins flat to better with gross ethanol margins pegged at $1.37/gln vs. $1.40 last week and $0.93 last year.  US Broiler Crush was estimated at 82.65c/lb vs. 79.39c/lb last week and 68.09c/lb last year.  Hog crush jumped solidly to $147.75/hd vs. $134.10 last week and $102.71/hd last year.  Cattle crush remains weak at $86.38/hd vs. $88.46/hd last week and $201.60/hd last year.  Profitability of C-IL soy crushers remains almost unbelievably high at $5.78/bu vs. $3.92/bu last week at $0.95/bu last year.  What’s funny is the fact that $0.95/bu is considered a good margin.  With meal remaining aggressively high at either +160U or +260V, crushers have plenty of margin to play with.  Cattle prices remaining at all-time record highs will keep demand high even if feeding margins are weak.  The squeeze will just travel up the supply chain.

Some decent moves in corn basis yesterday with destination rail bids improving off the PNW to +125Z for OND vs. +115Z a week ago.  HETX basis was firmer as well at +105/110Z for OND vs. +90/92Z a week ago.  Ethanol basis is considered flat. CIF barges have been under pressure, however, with harvest ramping up along the MS-River corridor.  OND boats could be called +81/83Z or $167.41-168.20/MT FOB.  US prices out of the Gulf have finally caught up with aggressive SAM numbers which were reported last night at $165.84-170.96/MT out of Argy for OND, and $172.92/MT out of Brazil for Nov/Dec.  SAM will remain an aggressive competitor this year, but acres are expected to shift more solidly to soybeans given current corn/bean ratios for the 2015 season.  The US isn’t the only place with a corn supply glut.

Still solid volume on the MPLS spot floor with 332 cars including 7 trains.  14.0% treading water at +275/350Z, 15.0% at +600/650Z and 16.0% pro finally getting some definition at +650Z.  Still not a lot of overt quality concerns out of ND in the way of vom and sprout, but color and TW seem to be genuine concerns.  Bushels will be there, but the desired bushels might be tough to come by.  Asian customers are the real sticklers for color, so PNW bids will be worth watching.  At some point, would still think a more concerted push for high pro-HRW comes around given the spreads with high pro spring wheat, but there is a lot of harvest and winter to get through yet.  13.0% pro HRW dropped 5c to +110/120Z and 14.0% pro was unchanged at +140/150Z.

Public Opinion as compiled by www.sentimentrader.com dropped to a fresh low of 23% on soybeans this week, now the lowest public opinion toward the commodity since February 7th, 2005.  As reported yesterday, funds are record short the soybean market and commercials have turned record long, so negative public sentiment is completely understandable.  Unfortunately, bearish sentiment isn’t a reason in and of itself to buy a commodity.  Bearish public opinion simply sets the stage for a major reversal once the trend finally changes.  Until upside technical objectives have been achieved, the trend in soybeans remains down on all scales and could still accelerate.  At the very least, the market would need to prove strength above $10.38, but preferably $10.89 or even $11.17 before traders can do anything more than cover shorts.  Sentiment remains negative towards corn and wheat, but nothing to the degree of soybeans.  Sentiment towards the CRB-Index as a whole is about to slip into pessimistic territory, the first time since June of 2012.  This might be the larger indicator, as it isn’t just grains feeling the negative sentiment.

 

Bottom Line:  Choppy, two-sided trade today as traders square positions ahead of tomorrow’s USDA reports.  The USDA will probably disappoint bears, choosing to wait until more reliable field data is available before confirming the monster yields.  The market is definitely pricing in larger yields than those seen in August, so now it is about demand picking up the slack.  Basis is firming, but end users are still comfortable lying in the weeds.  14/15 is shaping up to be a year of margin survival as opposed to margin maximization.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

9/9/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.1190 at 84.3500; Euro down 0.00230 at 1.28850; British Pound flat at 1.6118; Yen up 0.32% at 106.2022; S&P’s are up 1.75 at 2002.25; Dow futures are up 14.00 at 17,114.00; 10-yr futures are down 0.26%; The Nikkei closed up 0.28% at 15,749.15; The DAX is down 0.13% at 9,745.68; The IBEX-35 is down 0.58% at 11,038.50; Gold is up $2.90 at $1257.20; Copper is down $2.45 at $314.40; Crude Oil is up $0.88 at $93.54; Heating Oil is down $0.0023 at $2.8071; Paris Milling Wheat is up €0.50 at €170.75/MT.

Currency fluctuations continue to grab headlines with the US Dollar Index making fresh 14-month highs, and trading just 426 pips away from making fresh 3-year highs.  Poor economic data in Japan, looser monetary policy by the ECB and Scottish succession plans are weighing on the Yen, Euro and Pound, respectively, propelling the US Dollar higher. As mentioned ad nausea, this is a negative undertow for commodities as not only does it make physical goods priced in US dollars more expensive to global importers, but the Dollar is a major input for investment models employed by managed money groups.  With equities at or near record highs, a strengthening US Dollar will not be a boon for commodities.  Relatively quiet economic calendar in the US today.

Light, scattered precip across the Rockies and WCB this morning with rainfall chances increasing throughout the day today in the Dakotas, MN, IA, NE, MO.  The heaviest rainfall amounts will be found in E-NE/IA/S-WI where anywhere between 2.3-3.6” is expected to fall, but the WCB and Northern Plains are slated for a general 0.50-1.00” rain between now and Friday.  Following the spate of rain this week, things will then dry out during the 6-15 day period, which will be welcome to speed maturity along for row crops.  Temperatures will remain biased to the cool side the next 15-days with the first cold snap coming Thursday morning.  Friday’s lows still look the coldest, although forecasters have been moderating all week as to how cold it will actually get.  Widespread crop damage isn’t expected with our first taste of fall/winter weather.

 

Weaker markets from the overnight open and continuing that trend this morning led by corn and wheat as harvest progress picked up in the Northern Plains over the weekend and frost chances get dialed back.  Crop conditions last night remain historically high, resisting the urge to decline as happens seasonally every year, which suggests crop potential in the eyes of observers is holding or getting larger.  Old crop corn and soybean basis remains firm in an effort by end users to pry the last few “bridge-bushels” out before new crop, but new crop basis doesn’t suggest widespread export business is taking place.  The flash and sizzle of large scale Chinese wheat and corn purchases are notably absent this year, combined NAM and SAM soybean supplies are going to rise to record levels by the spring of 2015 and managed funds want nothing to do with the long side of our markets.

Corn conditions held steady last night at 74% G/E vs. 54% last year and remaining the highest since 1994.  Corn denting was pegged at 69% vs. 61% last year and 74% average.  Northern tier states remain behind on dent progress, such as ND -19% from average, MN -6%, WI -12%, MI -12% and PA -10%.  These states will need to be monitored in coming weeks as a significant amount of time is needed before this crop is frost-risk free.  15% of the crop is mature vs. 8% last year and 26% average.  ND, MN and WI have a combined 3% of the crop which is mature.  Soybean conditions were also unchanged at 72% vs. 52% a year ago, and still the highest rated for early-September since 1985.  12% of the crop is dropping leaves vs. 10% last year and 17% average.  More soybeans would appear at risk of frost-damage in the North than corn looking at state-by-state comparisons.

Spring Wheat harvest was estimated at 58% complete, up 20% from a week ago but still 20% below the 5-yr average.  ND doubled progress in the last week, going from 21% harvested to 42% but behind 74% average.  MN is 54% harvested vs. 35% last week at 89% average.  In ND there were 4.6 days suitable for fieldwork and it would appear producers took advantage.  Color and TW continue to be the biggest areas of concern for HRS quality as vomo and spout appear limited in severity so far.  ND is still just 76% harvested on HRW which is said to be laden with vom.  Oats harvest remains stubbornly slow in several states as well with WI at 80% harvested vs. 73% last week and 98% average.  ND is 54% harvested vs. 86% last year and 84% average.  MN is 90% harvested vs. 96% last year and 97% average.  Forecasts for this week could slow things further, and 2014 could well be the year of quality.

Lastly, HRW planting saw its first progress report with 3% of the crop planted nationally vs. 4% average.  The most progress has been made in NE where 11% has been planted which is spot on the 5-yr average.  Southern Plains states should have ample moisture for the onset of planting based on 14-day observed rainfall maps.  This will be welcome news to HRW farmers who have planted into dry soils the last two falls.

Reuters kicked out their average trade estimates for Thursday’s WASDE report.  Corn production is expected to come in at 14.288bbu with an average yield of 170.743bpa which would compare with the USDA’s August assessment of 14.032bbu and 167.4bpa.  The soybean crop is seen at 3.883bbu with an average yield of 46.293bpa vs. the USDA’s August numbers of 3.816bbu and 45.4bpa.  It remains the topic for debate as to whether the USDA will respond with production numbers close to average trade ideas, or wait until more objective harvest data is collected ahead of the October WASDE?  FWIW, over the last six years, the USDA has come in above the average trade guess on corn production 3 times and below 3.  If one pans out further, however, over the last 15 years, the USDA has come in above the average trade guess 12 times out of the last 15 years.  On soybeans, it is a crapshoot with the USDA coming in above the average trade guess 3 times and below 4 over the last 7-years.  Carryout ideas are expected to rise slightly on old crop corn, but drop on old soybeans.  New crop carryouts are seen rising for corn, soybeans and wheat.

 

Bottom Line: No reason to get fancy today as lower prices should carry the day.  Frost chances look less severe, average trade ideas for Thursday’s report are big and seem to be getting bigger, macro influences such as the Dollar Index continue to be a negative undertow and the US farmer remains undersold on all major crops.  CZ looks/feels as though it is still 15-20c above prices which would coincide with a longer-term low while SX still looks rich based on carryout ideas.  Constant margin stress testing needs to be enacted in this environment.

 

Good Luck Today.

 

9-12 Low Temps 9-9

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

 

9/8/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:55am: Dollar Index up 0.1900 at 83.9270; Euro is down 0.00130 at 1.29460; the British Pound is off 1.28%; S&P’s are down 3.00 at 2003.00; Dow futures are off 27.00 at 17,090.00; 10-yr futures are up 0.15%; The Nikkei closed up 0.23% at 15,705.11; The DAX is down 0.20% at 9,727.95; The FTSE-100 is down 0.95% at 6,790.17; Gold is down $0.20 at $1267.10; Copper is up $2.95 at $319.90; Crude Oil is down $0.64 at $92.65; Heating Oil is down $0.0151 at $2.8041; Paris Milling Wheat is down €0.75 at €171.25/MT.

The Pound, the FTSE and the UK are grabbing headlines this morning as polls over the weekend showed momentum is growing for Scotland to break away from the United Kingdom.  There have been months of surveys showing Scotland was unlikely to leave the 307-year old union with Brittan, but the latest survey Sunday showed “Yes” voters increasing to 51% on ending the alliance.  In response, the London stock exchange is down almost a full percent, the Sterling is off against the Dollar the most in a year.  Friday’s unemployment report was viewed as disappointing with August payrolls increasing just 142,000 vs. the pre-report estimate of 230,000.  The unemployment rate eased slightly to 6.1% from 6.2%.  Participation in the equity rally is becoming a concern with fewer than 6% of the S&P’s components at new highs despite the index closing at fresh record highs.

Small system in SE-SD this morning, otherwise a fairly quiet Midwest to start the week.  The moisture and cold mid-week into the weekend continue to be the focus of the Ag markets, although Sunday night maps suggested the cold air mass wasn’t going to be as damaging as what Friday runs suggested.  Most forecasters are still calling for low to mid-30’s in the Dakotas, the NW ½ of MN and far NW-IA by Friday morning.  ND, MT and possibly WI could see freezing temps, and the Canadian Prairies will see frost/freeze which could produce damage to Canola and immature wheat.  Moisture chances will increase with the cold which should be a benefit with IA/WI/MI seeing heavy rains the next 3-days including up to 3.25” in IA.  NOAA maps put 6-10 temps much below normal but things moderate in the 8-14.  Both outlooks were drier than average.

 

Mostly weaker tone to begin the week with frost/freeze chances not looking as severe as they did to close the week, and traders rightly taking a bit of risk premium out in response.  The private crop estimate tour continued Friday with Informa Economics releasing their latest estimates, although they have been one of the few firms who are accounting for an acreage drop due to differences in NASS and official FSA data.  Commitments of Traders Data released Friday showed a continuation of recent trends, especially in soybeans which saw commercial hedger positions move to historic levels.  Markets feel content to ease heading into the September WASDE report later this week, although the USDA isn’t likely to match some of the huge estimates out there given October is when more objective yield data becomes available.  We need signs of fresh demand as end users continue to lay in the weeds.

StatsCan released their latest inventory report as of July 31st with almost all grains coming in below pre-report estimates.  All-wheat was pegged at 9.795MMT vs. pre-report ideas of 10.7MMT, although the stocks were still 93% higher than a year ago.  Canola was pegged at 2.363MMT vs. ideas of 3.0MMT, but up 301% y/y.  Oats were seen at 1.031MMT vs. ideas of 1.2MMT, but up 103% y/y.  Lentils were the interesting one at 169,000MT, down 45% from a year ago.  Production of lentils in Canada were only expected to be up 2% from a year ago, and with stocks levels sharply lower than a year ago, this market may be one to pay attention to for affected growers.  Lower stocks than estimated, but still plenty of grain in Canada to buffer against delays or smaller than expected production in the coming harvest.

In the Commitments of Traders data, funds were shown adding to their corn positions with their gross position now 640,389 contracts, which accounts for 36.89% of total open interest.  This remains the third largest exposure to the market for funds going back to 2006, even though their net position remains uninspiring at +11,621 contracts.  More concerning is the fact gross commercial longs continue to see their position drop which is now down to 329,708 contracts, the smallest since September 25th, 2012.  In a year we are going to harvest a record corn crop, end users shouldn’t have their lowest position in 2-years.  Commercial shorts also remain stubbornly small, hinting at farmer % sold levels, or lack thereof.  The latter two positions are obviously tied together, and without farmer selling, it is difficult for end users to obtain coverage.

In soybeans, record territory was once again achieved with funds now amassing a net short position of -70,405 contracts, the largest going back to at least 1/1/2007.  They now account for -7.1% of total open interest.  On the other side of the coin, gross commercial longs pushed to 310,436 contracts, also a new record for that group.  The net commercial position of +46,084 contracts is a record also.  I always look at the Supplemental report for COT analysis, but in wanting to see just how historic current soybean positions are, I took a look at the CBOT Legacy report which has more data, but is less separated by groups.  So one gives up a bit of clarity on who for more history.  In doing so, I found that commercial hedgers according to the Legacy report have a net long of +96,540 contracts which is the largest net long since September 29th, 1997.  In addition, the small speculator now has a net short of -82,820 contracts which is the largest net short for that group going back to January 1986.  The trends in the soybean market don’t seem sustainable with funds getting record short while commercials are record long.  At some point, something is going to have to give.  Below is a chart from www.sentimentrader.com showing the commercial soybean position going back to 1986.

No backing down in wheat basis on Friday with Minneapolis 14.0% pro bid +295/350Z, up 25c on the high end.  15.0% protein was indicated at +625/630Z, up 75c on the bid side.  Volume continues to be heavy at 247 cars including 7 trains.  Still not much pickup in high-pro HRW basis, at least according to news wires with 12.0% unchanged at +110/120Z, 13.0% unchanged at +115/125Z and 14.0% unchanged at +140/150Z.  14.0% pro is up 20c from a week ago, but 12’s and 13’s were roughly unchanged.  Some harvest progress should have been made last week in ND and MN, so tonight’s crop condition report will be interesting to get a gauge on remaining acres and quality.  If this protein scare is for real, we should see basis respond in coming days/weeks.  Color seems to be the main concern as of late as opposed to vomotoxin or sprout as originally feared.

The Dollar Index continues to play a major role in US grain competiveness, and with the Dollar hitting the highest levels in 14-months, this is obviously a negative for export demand.  This week we will take a look at US grain prices adjusted for the US Dollar Index which sheds light on the currency’s influence.

 

Bottom Line:  Less frost risk should mean premium extraction today provided midday updates don’t force cold air back in for later this week.  Northern Plains’ row crops still need a lot of time to reach full maturity and this week’s cold temps won’t help.  Still, crop estimates suggest higher USDA numbers this week and next month, and until end users get in line to support price, a sustained rally will prove fleeting.  Crop conditions will be a focus this evening, but charts are still negative and will remain a drag to our prices.

 

Good Luck Today.

 

Soybean Commercial Position 9-8

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

9/5/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:55am: Dollar Index down 0.0800 at 83.7400; Euro up 0.00170 at 1.29550; S&P’s are down 7.50 at 1990.50; Dow futures are down 58.00 at 17,021.00; 10-yr futures are down 0.04%; The Nikkei closed down 0.05% at 15,668.68; The DAX is down 0.30% at 9,695.25; The IBEX-35 is down 0.08% at 11,091.40; Gold is down $0.90 at $1265.60; Copper is up $0.35 at $315.45; Crude Oil is up $0.29 at $94.74; Heating Oil is up $0.0095 at $2.8458; Paris Milling Wheat is down €0.25 at €170.50/MT.

The US Dollar Index is off slightly this morning following the surge to fresh 14-month highs thanks in part to the ECB’s decision yesterday to cut benchmark interest rates from record lows to new record lows, and after the BOJ decided to hold steady on stimulus efforts.  The Japanese Yen is trading at a six-year low, which will bring back stories of the carry trade picking up in popularity.  The main focus of today will be the August unemployment report in the US which is expected to show a gain of 225,000 jobs, up from 209,000 in July with the unemployment rate easing -0.1% to 6.1%, matching the six-year low posted in June.  The US economy has now produced a net +9.3 million jobs since the payroll trough in February 2010.  The total number of US payroll jobs in May 2014 finally exceeded the previous payroll peak posted in January 2008.

A fairly wide band of showers passing through the WCB and Great Lakes this region, encompassing NE/KS/IA/WI/MI with totals since midnight relatively light aside from heavier activity along the NE/IA border.  Precip the next 5-days will be confined to KS/MO/IL with outlying areas receiving some moisture, but precip in those three states picking up to 1.00-2.50” in spots.  The Northern Plains is expected to remain dry the next 5-7 days in ND/MT which will be especially welcome, providing the chance for HRS harvest to pick up.  Afternoon NOAA maps, shown below, for the 6-10 and 8-14 time frames got cooler on yesterday afternoon’s model.  The first map, the 6-10, now shows much below normal temps for the Northern Plains and WCB, which is likely to produce frost/freeze in northern growing areas.  Futures are showing a bit of a bounce on this news this morning.

 

After setting fresh contract lows in SX, CZ, WZ, KWZ and MWZ yesterday, the Ag complex is seeing a bit of a relief bounce this morning on cooler forecasts yesterday afternoon and a technical bounce as profit-taking grabs hold ahead of the weekend.  For the week, CZ is down -16.0c, SX down -15.50c and WZ is down -27.25c as November soybeans barely defended the all-important $10.00 level.  Private forecasts continue to roll out each day, and almost every single estimate puts the US corn and soybean crops and yields above the USDA’s August numbers.  The market is clearly transitioning to the idea of bigger crops, and taking risk premium out in the process.  The cooler forecast in the maps below will give traders caution on getting too bearish, too quick, but unless this frost event is catastrophic, it probably won’t derail these crops from getting bigger.  What it will do, however, is slow the maturation process, stringing out harvest well into November and December for northern growers.  This may prevent a concentrated harvest selling effort, but the bushels appear to be there, and markets are trying to price themselves accordingly.

Lanworth, the satellite imagery company, was the latest firm to release corn and soybean production estimates, putting the corn crop at 173.7bpa and 14.649bbu.  Their soybean crop was pegged at 46.7bpa and 3.852bbu.  Both sets of numbers are below their previous forecasts, but well above the USDA’s August numbers.  Informa Economics is scheduled to be out mid-morning with their latest numbers.  Informa’s estimates are similar to the USDA’s in that they take field samples in addition to polling farmers.  Their numbers aren’t likely to be as big as some of those released in recent days, but higher than the USDA’s latest guess looks likely.  Remember that Informa is one outfit which has been touting an acreage reduction in corn of 2.0-2.5 million based on FSA-data, so an increase in yield isn’t necessarily going to grow their carryout projections sharply above the USDA.  Acres are still definitively in play.

There were reports from cash traders yesterday South Korea was showing dissatisfaction towards their latest US corn cargoes due to high damage and FM.  This is to be expected given the high percentage of corn which was either dried or put away wet, and the last bit of old crop is usually of lesser quality than harvest boats.  It doesn’t help that the cargoes South Korea is currently receiving are priced at values well above current replacement numbers.  CIF corn boats were easier by 2-4c for OND yesterday at $171.84/MT FOB.  Argentine corn has been trending well cheaper than US as of late with Oct/Nov indications down around $164.86-169.09/MT.  The same can be said about US soymeal against Argentine meal with yesterday’s sell off being blamed in part on new crop meal sales out of the US being switched to SAM.  US soybeans are cheaper than SAM, but meal is not given the impressive domestic feeding margins and the ability of livestock producers to pay up in competition with importers.  October soymeal cargoes in the Gulf were quoted at $480.49/MT yesterday vs. Sept meal cargoes in Argentina at $430.00/MT and Oct Brazil cargoes at $424.28/MT.  Reliability holds a big premium, however.

The MWU/MWZ hit a new contract high yesterday of +14.25c as basis on the Minneapolis spot floor continues to hold firm amidst heavy volume.  Yesterday there were 271 cars including 6 trains with 14.0% protein wheat trading up 25-45c at +295/325Z.  15.0% pro wheat was indicated at +550/630Z, down 50c on the bid side, but up 5c on the offer.  In South Dakota, multiple elevator groups have been reported as paying $1.00-2.00 over the board, equating to $7.50-8.00 cash wheat for 15.0% protein in the OND slots.  The question on a lot of farmers minds is whether this is a short-term basis event to be taken advantage of, or whether 14/15 is going to prove to be a strong basis environment throughout.  My gut says the former given HRW’s discount to HRS at similar protein levels.  For instance, 13.0% HRS is bid at $7.09 a bushel vs. 13.0% HRW at $7.41/bu.  But 14.0% protein HRS is bid at $9.09/bu and 14.0% HRW is bid at $7.66/bu, a difference of $1.43.  US mills are making the same calculation and will adjust mill grinds to work in as much high-pro HRW as possible at that kind of spread.  In addition, with 70% of North Dakota’s wheat harvest left to come in, odds are at least decent, all of it isn’t going to be feed grade due to recent moisture.  The ability for 14.0% and 15.0% HRS to maintain +300/500Z for months at a time isn’t unprecedented.  Yet, taking advantage of the basis rally on the chance North Dakota isn’t chock full of feed grain seems like a good hedge going into fall harvest.  Contact Halo Commodities for the most up to date bid/asks in your area.

Export sales will be released this morning after their one day delay because of the Labor Day holiday.  A pick up in export demand should be seen now that fresh contract lows have been set in every December contract on the board.  Corn export sales are running behind a year ago due to slower sales to China and Europe.  But sales to other major importing destinations such as Mexico, South Korea and Japan are well above a year ago, and in some cases on pace for record imports.

 

Bottom Line:  Continue to watch forecasts for clues about next week’s frost event in the northern growing areas, but realize it is probably a good excuse for some profit taking ahead of the weekend.  Private estimates are growing, but the USDA may be slow to adopt the big numbers until more harvest activity has taken place.  Storage decisions will need to be made in coming weeks about which crop to store, and if spring wheat is in the bin, consider the strong basis levels currently being afforded for quality wheat.

 

Good Luck Today.

 

http://www.ft.com/intl/cms/s/0/2ac3cd88-3447-11e4-8039-00144feabdc0.html?siteedition=intl#axzz3CRH9yDer

 

CPC 6-10 9-5 CPC 8-14 9-5

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

9/4/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:25am: Dollar Index up 0.0630 at 82.9280; Euro down 0.00180 at 1.31270; S&P’s are up 7.00 at 2005.75; Dow futures are up 42.00 at 17,115.00; 10-yr futures are down 0.06%; The Nikkei closed down 0.33% at 15,676.18; The DAX is down 0.03% at 9,623.86; The IBEX-35 is up 0.43% at 10,933.90; Gold is up $2.30 at $1272.60; Copper is up $1.85 at $314.55; Crude Oil is down $0.23 at $95.32; Heating Oil is up $0.22 at $2.8720; Paris Milling Wheat is down €2.50 at €168.25/MT.

Lots of economic data in the US today, but important to global markets will be the results of this morning’s European Central Bank meeting.  Investors are hopeful ECB President Mario Draghi will announce new stimulus measures to save the fragile economic recovery in Europe as hinted about in last month’s presser.  The ECB’s benchmark interest rate is already at a record low of 0.15%, so new measures such as the Federal Reserve’s bond buying program could be enacted.  In the US, economic data today will include the ADP private payroll report which is expected to show 220,000 jobs added during the month of August, a slight improvement from the 218,000 in July.  Friday’s unemployment report is expected to show an increase in August payrolls of 225,000, up from July’s 209,000.  Unemployment claims are expected to jump rise by 2,000 to 300,000.

Rains moving across N-MN as well as WI/IL/MI this morning as the forecasted precip for the Great Lakes falls as advertised.  Updated maps this morning show rains continuing to impact the Great Lakes the next 3-days, before a system moves in the middle of next week to the central corn belt.  7-day forecasted precip amounts for the central/eastern corn belt show heavy totals in MO/IA/IL/WI/MI.  The WCB and Northern Plains are expected to be dry the next 7-days which will be welcome for small grains harvest.  Manitoba and Ontario are still slated for rains which will impact harvest efforts there.  Frost has been the main topic the last 2-3 days and NOAA’s extended maps are confirming a below normal temperature pattern during the 6-15.  Slight frost/freeze risk does exist for the Dakotas, but impact is expected to be light.  September 13th-19th are the primary dates for the cooler temps.

 

Mixed Ag markets this morning with a little bounce in the grains but softer prices in the complex as traders readjust after yesterday’s drubbing.  Fresh contract lows were witnessed for CZ, WZ, KWZ, MWZ and SX yesterday, a sign technical momentum to the downside has been reestablished.  Private crop estimates which are well above the USDA’s August estimates continued to be released yesterday, and when combined with a counter-seasonal rise in condition ratings Monday, it is very hard to make the argument the crop isn’t getting larger.  Informa economics will be out with their latest estimates sometime this week, and should be a bit lighter than FC Stone and Allendale.  Still, the market was getting comfortable in the first half of August the crop had stabilized, but weather since has been conducive to adding test weight and filling pods.  Frost remains the only risk to this crop.

US wheat was uncompetitive in the latest Egypt-GASC tender with French and Romanian wheat taking the business handily.  60,000MT of French and 60,000MT of Romanian wheat were purchased at an average price of $258.89/MT.  A number of Russian cargoes were offered, but were uncompetitive, which is a heartening thing for other global exporters.  No US wheat was even offered, and what’s worse is French wheat won the business, the country battling feed wheat issues.  Will be interesting to see if Egypt institutes policies like Algeria in the way of banning cargoes containing wheat from other origins than that listed in the contract details.  This of course due to France importing wheat from Lithuania and Great Britain.

Also on wheat, it was announced Sinograin has bought 24.3MMT of wheat from farmers in China, nearly three times the amount purchased at this time last year in an attempt to buy more domestically and less abroad.  The purchases will come in tandem with a 10MMT sale of wheat from domestic reserves so as to rotate reserves in Northern growing areas.  Imports by China are expected to fall from 6.8MMT last year to near 3MMT this year, a negative for suppliers in North America.

Worth noting that during yesterday’s session, the feeder cattle/corn ratio rallied to 65.26, the highest level on record going back to January 1974.  In addition, the live cattle/corn ratio jumped to 44.68, the highest level since January 16th, 2006.  Also, Heating Oil/Corn pushed to 0.81125, the highest level since August 28th, 2006.  Profitability for livestock producers continues to remain very, very strong.  Ethanol margins are also in that book, and it ensures consistent demand in the coming marketing year.  However, end users continue to lay in the weeds when it comes to booking corn.  This strategy has proven wise so far with lower lows in corn for weeks.  At some point, end users should step up to the plate to help stabilize this corn market and cash sources believe this happens when December corn slips into the $3.25-3.50 pricing envelop.  Would probably line up with harvest lows at this pace.

The Dollar Index is rising to fresh 14-month highs this morning on the back of the ECB’s decision to cut their benchmark interest rate to 0.05% from 0.15%, a new record low.  This will be a negative feature for commodities during today’s trading as well as the rest of this week.

 

Bottom Line: Expect a choppy/lower market today with the Dollar Index surging to the highest levels in over a year.  Just when it felt like crops were beginning to stabilize, weather the latter half of August and so far in September has been conducive to adding test weight and filling pods.  If these crops make it through the frost scare next week, they will be well down the homestretch.  Our markets desperately need end users to step up with the big bat, something they’ve been reluctant to do so far.

 

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

9/3/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 5:55am: Dollar Index down 0.1290 at 82.8600; Euro up 0.00240 at 1.31510; S&P’s are up 8.25 at 2008.00; Dow futures are up 76.00 at 17,129.00; 10-yr futures are down 0.26%; The Nikkei closed up 0.38% at 15,728.35; The DAX is up 1.23% at 9,624.23; The IBEX-35 is up 1.15% at 10,879.20; Gold is up $2.80 at $1267.80; Copper is down $1.00 at $314.50; Crude Oil is up $0.86 at $93.74; Heating Oil is up $0.0225 at $2.8192; Paris Milling Wheat is down €0.25 at €173.00/MT.

European stocks are leading the global rally this morning after a cease-fire was announced in eastern Ukraine.  The West and Ukraine have accused Russia of sending in troops and weapons to support Pro-Russian insurgents since April.  Russia has denied these charges, and the final chapter hasn’t likely been written in this saga.  Chinese economic data last night showed the HSBC China Service Business Activity Index rising to 54.1 in August from 50 in July.  US vehicle sales in the US for August are expected to edge higher to 16.60 million units from 16.40 million in July.  US vehicle sales posted a new 8-year high of 16.92 million units in June before backing off by -3.1% in July.

A couple small disturbances on the radar this morning in S-MN and another in E-KS/W-MO.  Precip this week will be confined to WI/MI/IL/IN and the rest of the Great Lakes, while the central/western corn belt will dry out to a certain extent.  The Northern Plains should also be void of moisture the next 5-days which will come as a relief to small grains producers.  The Canadian Prairies are still expected to see an active rainfall pattern which will hinder early harvest efforts.  The real discussion yesterday was about a frost/freeze event showing up today through next Friday in the Canadian Prairies and far northwestern North Plains in the US.  The Canadian Prairies will be susceptible to frost/freeze damage on row crops and immature small grains, but the US isn’t expected to see any real damage to fall crop outside of a little foliage burn.  6-10 and 8-14 day maps from NOAA do show below normal temps for the Northern Plains and Great Lakes through September 15th, so this threat will have to be monitored.  Precip looks to stay above normal in the Midwest.  Frost is the last threat against our record row crops.

 

Weaker out of the gate and finding follow through selling pressure in many of the Ag markets this morning following better than expected crop progress reports, and higher than expected production estimates from well-known brokerage.  Wheat failed at the 50-day moving average in both the WU and WZ contracts yesterday after the threat of violence in Ukraine eased once again, although not likely the last flare-up we’ll see.  The first frost-freeze threat doesn’t look like it’s going to be substantial enough to derail the “big crops get bigger” train, and the Dollar Index trading near 14-month highs isn’t lost on the managed money community.  It really feels like farmers being long grain against managed funds being short grain will come to a head in coming weeks/months, but it’s a question of which group has more resolve?

Beginning first with the crop progress report, we saw corn conditions rise 1% to 74% G/E, an unexpected late season rise which is probably tied to the recent rainfall in dry pockets of the WCB.  The corn crop remains the highest rated for late-August since 1994. Nationally, the crop is 53% dented vs. 39% last year and 59% average.  Some of the northern states are a bit troubling on dent progress, however, with ND 21% behind average, MN -13%, WI -13%, MI -13%, PA -13% and IA -8%.  Nationally, the corn crop is 8% mature vs. 4% last year and 16% average.  We aren’t out of the woods until we get this crop to black layer.  Soybean conditions rose 2pts to 72% G/E, also an unexpected rise, thanks to increases in SD/MN/WI.  Soybean conditions for late-August are now rated the highest since 1985, a heartening thing for bears.  5% of the crop nationally is dropping leaves vs. 3% last year and 7% average.

The small grains portion of the report is a bit more concerning.  Spring wheat conditions declined 3pts to 63% G/E vs. 70% last year with notable declines in MT/SD/ND.  Spring Wheat harvest progress nationally was pegged at 38% complete vs. 27% last week and 65% average.  Top HRS producing state ND was estimated to be 21% harvested vs. 49% last year and 60% average.  MN was 35% harvested vs. 79% last year and 78% average.  SD is 68% harvested vs. 93% last year and 96% average.  ND is still only 59% harvested on HRW, and the lack of progress is beginning to produce serious quality concerns by way of color-bleaching, sprout and lack of test weight and protein.  Quickly, oats progress isn’t stellar either at 80% complete nationally vs. 89% last year and 93% average.  Within each state, ND is obviously the laggard at 37% complete vs. 63% last year and 69% average.  MN is 82% vs. 92% average, and WI is 73% harvested vs. 95% average.  WI and MN are expected to see more rain this week, which could compound quality problems and make harvesting more difficult.  Oats are a hair-trigger market now that we’re so heavily dependent on Canadian oats which are sure to have their own issues in coming weeks.

The spring wheat quality discussion in a good segue into wheat basis which has turned super-nova on the Minneapolis spot floor.  During yesterday’s trading, there were 424 cars including 12 trains for sale which is one of the heaviest volume days for the spot floor in recent memory.  As impressive as the volume were the basis levels traded with 14.0% pro up 15-40c to +250/350Z and 15.0% pro up 25-70c to +500/620Z.  Splitting the difference on the bid/ask, one gets +560Z which is $11.80/bu.  If a farmer in the Northern Plains has higher protein wheat to sell, they should be in contact with their local merchandiser as these sort of basis levels aren’t likely to hang around forever.  Mills will get sick of paying such high premiums for high-pro HRS and will attempt to switch grinds to include more HRW.  This won’t happen overnight, but it’s happened enough times in recent years to be certain mills won’t be the ones left holding the bag.  The quality concerns in both the US and the world are very real.  Protein should be worth something this year as the wheat market likes to pay for whatever it doesn’t have.  Yet, this doesn’t mean such a sharp basis rally shouldn’t be rewarded.  Review marketing objectives.

Late yesterday afternoon, FC Stone released their latest production estimates which they derive from polling their country elevator group.  According to the brokerage, they see the US corn crop at 14.6 billion bushels with an average yield of 174.1bpa which would compare with the USDA’s yield assessment of 167.4bpa.  They see the US soybean crop at 4.0 billion bushels with an average yield of 47.6bpa vs. the USDA at 45.4bpa.  These are some of the highest estimates I’ve seen in print so far, but no one’s yield guesses can really be thrown out given the condition ratings vs. comparable record yielding years.  Given the delayed maturity of the crop this year, yield will likely remain a moving target right up to the January “final” production report.

Lastly, the opinion index (Optix) of soybeans by managed funds according to www.sentimentrader.com has waded into some record territory.  The latest reading by the firm, which uses a number of sentiment based surveys to produce a single index value, registered a 26% reading which is the lowest since September 11th, 2006.  Loosely, this means only 26% of the traders within the fund category believe soybeans will rally in coming weeks.  As the chart shows, when sentiment has gotten especially negative over the last 10-15 years, notable bottoms have formed, especially back in 2006, the last time we were at values like those currently observed.  Sentiment alone doesn’t beget a rally, but it does make one look for changes in fundamentals which could turn the sentiment weather vane.

 

Bottom Line:  Look for lower prices today as the market grapples with improving conditions to an already record projected crop.  Farmers are long, and funds are short most grains.  Who wins this tug-of-war in coming weeks will likely set the price range for the next several months.  Fortunately, end users of grains are making a lot of money, and demand has the potential to expand at these prices.  Keep tracking charts for clues at short-term turning signals and bear in mind we are in one of the more seasonally-weak time periods.

 

Good Luck Today.

 

Soybean Optix 9-3

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

 

 

 

9/2/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index up 0.2140 at 82.9620; Euro down 0.00180 at 1.31170; S&P’s are up 2.00 at 2003.50; Dow futures are up 22.00 at 17,107.00; 10-yr futures are down 0.20%; The Nikkei closed up 1.24% at 15,668.60; The DAX is up 0.74% at 9,549.14; The IBEX-35 is up 0.48% at 10,798.40; Gold is down $15.20 at $1272.20; Copper is down $0.95 at $315.10; Crude Oil is down $0.83 at $95.13; Heating Oil is down $0.0278 at $2.8323; Paris Milling Wheat is unchanged at €173.75/MT.

The US Dollar Index is pushing to fresh 14-month highs this morning, working against commodities of all shapes and sizes.  Weak economic data out of Europe and the Ukraine crisis are working in tandem to drag down the euro which comprises 60% of the US Dollar Index.  The continued fighting in Ukraine is prompting the EU and US to serve up another round of economic sanctions as dignitaries on both sides argue whether what Russia has done entering Ukraine is an “invasion” or an “incursion.”  Glad that’s what they’re focusing on.  This week’s economic data will include July construction spending, July factory orders, August vehicle sales, ADP payroll report and the August unemployment report which is expected to show an increase in payrolls of 225,000 and the jobless rate to fall 0.1 to 6.1%.

Some decent rainfall over the 3-day Labor Day weekend with heaviest totals falling in E-KS/W-MO/IA/NW-WI.  The Northern Plains saw more rain in MN/ND, but radar returns look less than advertised last week which was probably welcome for spring wheat farmers.  Still, areas which have been inundated with rain in ND did see localized totals over 1.0”.  The 7-day forecasted precip maps for this morning show solid chances of rainfall for MN/WI/IA/KS/MO in the next week, while SD/ND/MT should remain mostly dry.  The Canadian Prairies are also expected to see decent rainfall in the coming week, although harvest efforts probably aren’t too far along just yet.  Extended maps from NOAA don’t show anything which would suggest frost chances through September 15th, although temps will be below normal in ND/MT/WY.  Precip should remain above normal, and rainfall tables show most areas getting through August with better than 100% of normal precip.  Frost really is about the only obstacle left to get through for the row crops.

 

Weaker overnight trade has given way to firmer markets this morning led by soybeans which are posting 3-5c gains.  Based on weekend rainfall, updated maps which don’t suggest frost through the first 15-days of September and no real escalation in the Ukraine/Russia conflict, weaker prices were probably expected to start the shortened trading week.  Yet, cash basis remains strong for both corn and soybeans as do calendar spreads as farmers resist “give-up” selling at current board prices.  Commitments of Traders data which is discussed below continues to point towards and undersold farmer, but large spec traders also have a great deal of short exposure already on the books.  Without fresh technical breakdowns in coming weeks, funds may begin to question the deployment of capital to the short side of our markets.

Wheat basis and quality continue to be hot-button issues both here in the US and abroad.  Going home Friday, the Minneapolis spot floor saw firm closes for most protein classes with 14.0% bid +235/310Z, up 5-60c, while 15.0% protein was bid +475/550Z.  There were 275 cars which included 6 trains, so volume has definitely picked up.  The spread between 15.0% protein and 13.0% protein HRS has pushed to over $3.00/bu for the first time since mid-2011.  The weather in ND wasn’t conducive to making protein, and now things like sprout and vomotoxin are creeping into the equation.  Some farmers have resorted to drying wheat to get it out of the field before those things become an issue.  If strong basis can be attained for OND type slots, farmers with quality should be taking a long look at their inventory.

Friday’s Commitments of Traders data proved interesting in both the corn and soybean sections, but for different reasons.  In corn, the buildup in large spec total corn positions continued with funds now having amassed 636,347 contracts of corn which accounts for 36.25% of total open interest.  While their net position is only short -3,181 contracts, they are accounting for over a third of the total corn market, the third largest position they’ve held as a percent of open interest since at least 2007. As discussed last week, when the funds decide to cover either their short positions or liquidate their long positions is why keeping track of their movements is key.  Directionally, funds seem ambivalent at the moment.  But if large spec traders believe carryout is done getting larger, or if yield is still going up, a large scale covering of these positions could take place.  While still on corn, it was a bit troubling to see the gross commercial long (end user) sell down 40,425 contract of corn to put their gross long at 347,449 contracts, the smallest position since 3/5/13.  Conversely, the gross commercial short (farmers/elevators) remain grossly undersold with a gross position of 583,123 contracts.  While just the smallest since January, it is the third smallest gross short for late August since 2007.  With the size of the crop coming in, it continues to look like farmers are undersold and will enter harvest that way.  If funds cover their gross short in coming weeks/months, farmers could be there to cap any rally attempt.  A chart showing the commercial short position relative to the last 7-years is below.

In soybeans, the end users keep buying and funds keep selling.  The Gross Commercial Long in soybeans pushed to a new all-time record last week of 320,416 contracts, which accounts for 33.4% of total open interest.  Over the last 7-years, the gross commercial long rarely ever ventured above 28%, let alone 30%.  End users are taking a massive long position in soybeans either because they are bullish soybean prices, or have a giant short basis position against the long futures which will require booking soybeans to fill existing sales contracts.  Either way, commercials have big exposure to the long side of the soybean market.  Large spec traders remain bearish with their net short position pushing back up to -63,996 contracts, the second largest on record.  It feels like we’ve seen this movie before with funds betting short and commercials betting long.  Usually, commercials know something funds don’t.

Jumping back to corn, I thought it would be worthwhile to take a look at December corn and when it typically posts contract and seasonal lows.  For this study I went back and looked at December corn charts from 1990-2013, and as conventional wisdom might suggest, December corn tends to hit lows in late fall.  Specifically, as the chart below shows, December corn likes to hit contract lows in November more than any other month, having done so seven times since 1990, or 29% of the time.  August was second with three, while several months have witnessed Dec corn post contract lows twice.  December corn tends to post seasonal lows in the same month as the largest USDA projection for ending stocks.  Given the uncertainty about acres in coming months, and the next objective yield data not coming in until October, it wouldn’t be totally unreasonable to assume December corn contract lows were posted in August.  Downside momentum has been lost, funds are sitting on the third largest total corn position on record and private carryout estimates remain 100-200mbu under the latest USDA guess.  This doesn’t mean for certain December corn has already seen its lowest prices, but the USDA needs to continue posting larger carryout projections to keep fresh lows coming.

Estimates for the StatsCan July 31st stocks to be released on September 5th came out over the weekend, and large carryouts are indeed expected.  For all-wheat, analysts estimate stocks as of July 31st at 10.7MMT, the highest in 20-years.  Canola stocks are seen at 3MMT, the highest all-time going back to the 1980’s.  Oats stocks are estimated at 1.2MMT, the highest since 2009.  The large crops from a year ago, coupled with poor rail service throughout 2014 are both culprits in the burdensome stocks levels north of the border.  The smaller crops of 2014 should have a sufficient buffer of 2013 stocks to ensure tightness isn’t seen during 2014/15.  No shortage of North American grain stocks in 2014/15.

 

Bottom Line: Choppy start to the week, but morning traders seem interested in higher prices.  In coming weeks the game of chicken between heavily short funds and especially long farmers will come to a head.  Storage and rail performance will also be main actors in this saga.  Continue to watch charts for short-term turning signals, but keep in mind prices usually make highs and lows when the news is at its worst or best.  Have we seen the largest carryout numbers of the year already?  Time will tell.

 

Good Luck Today.

 

Gross Comm Short Corn 9-1Dec Corn Lows since 1990 9-1

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.

 

8/29/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:45am: Dollar Index down 0.0040 at 82.4730; Euro up 0.00040 at 1.31900; S&P’s are up 4.75 at 2001.50; Dow futures are up 35.00 at 17,112.00; 10-yr futures are down 0.05%; The Nikkei closed down 0.23% at 15,424.59; The DAX is up 0.14% at 9,475.51; The IBEX-35 is up 0.05% at 10,727.10; The Russian MICEX is down 0.85% at 1,411.64; Gold is down $4.90 at $1285.50; Copper is up $1.60 at $316.65; Crude Oil is up $0.30 at $94.85; Heating Oil is up $0.0022 at $2.8540; Paris Milling Wheat is up €1.00 at €176.00/MT.

Mixed to firmer global equity markets this morning as fighting in Ukraine expands with Russian-backed forces making gains on two fronts.  The US and European Union ramped up their sanction talk in the last 24 hours to no avail as Russian Foreign Minister Lavrov called the NATO satellite photos showing Russian troop movements “fakes.”  In the US today, University of Michigan consumer confidence is expected to show a +0.9 increase to 80.1 from the early Aug-level of 79.2.  This reading hit a 1-yr high in April of 84.1, but has since fallen in three of the last four months.  Personal income for July is expected to rise +0.3% with personal spending rising +0.2% from June’s report of +0.4% for both measures.

Scattered precip across the US this morning with a couple systems in the Great Lakes and southern plains.  Good moisture fell in SD/IA/SE-MN in the last 24-hours with heaviest totals in SW-IA near 3.0”.  More precip the next 3-5 days in the Midwest with additional moisture falling IA/MO/WI and more rain falling in ND too, much to the chagrin of HRS farmers.  Another 0.5-1.00” is being forecast across the southern half of the state which will surely impede additional harvest progress, and raise quality concerns.  A continued warming trend is seen in the 6-10 and 8-14 day time frame according to NOAA which will promise a warm, wet finish for the Midwest.  Heat would be welcome everywhere at this point to push the crop toward maturity.

 

A bit of follow through strength in the wheat and soybeans while corn grapples with increasing production ideas and waffles with 1-2c losses.  Today should prove to be rather low in volume ahead of the long, Labor Day weekend.  Thursday’s soybean volume was the lowest since the end of May, a negative feature considering it was on a higher closing day.  The Russian/Ukrainian tension has provided several 1-3 day pops in the past, but none of them have held more than that time frame.  It will be interesting to see if this proves more than that, but considering the long weekend ahead, and the prospect for more fighting, funds may want to de-risk a bit more via short-covering.  Pushing through the 50-day moving average on WZ was also a positive and will keep trend follows leary of adding to shorts until another failure.

ADM House stepped up with the big-stick last night on the first delivery day, dropping 800 HRW certs on the street with no real big stoppers to mention.  Kansas City wheat is sitting at a very precarious position on weekly charts, having held support near the $6.00-6.10 area three times going back to May of 2012.  This type of range can be looked at in several ways: We either just held the bottom end of the $6.00-9.00 range, or we are merely taking a pit stop on the way down inside the larger $4.50-9.00 range.  If $6.00 is broken as it has been in Chicago wheat, there is quite the air pocket down to the next support.

 

Bottom Line: Not much else to hash through heading into the weekend, but positive closes would be at least moral victory for bulls.  Export sales for corn continue to be a concern for 14/15 with many analysts suggesting export sales could be another 200-300mbu.  If that proves true, and yield ideas are larger, carryout for 14/15 could be well over 2.0bbu.  Sunday/Monday weather maps will be a focus for the trade, but at current, no early frost concerns through mid-September.

 

Good Luck Today.

 

 

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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.