6/25/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index up 0.0070 at 80.3440; Euro up 0.00020 at 1.36080; S&P’s are up 1.75 at 1945.00; Dow futures are up 3.00 at 16755.00; 10-yr futures are up 0.06%; The Nikkei closed down 0.71% at 15,266.61; The DAX is down 0.43% at 9,894.85; The IBEX-35 is down 0.63% at 11,036.30; Gold is down $7.80 at $1313.50; Copper is up $0.10 at $314.60; Crude Oil is up $0.55 at $106.57; Heating Oil is down $0.0126 at $3.0364; Paris Milling Wheat is down €1.00 at €185.50/MT.

Equity markets finally showed some life yesterday, even if it was to the downside as stocks had their biggest decline in two weeks amidst the ongoing violence in Iraq.  The S&P 500 posted a key reversal which is defined as when price puts in a new, meaningful high followed by trade below the previous day’s low.  By the end of trading, the S&P 500 had closed below the previous three day’s closes, helped in part because of the narrow ranges the past week.  Economic data on the docket today will include May durable goods orders which are expected to be up 0.3% ex-transportation, following the 0.6% rise in April.   Today will also see Q1-GDP which is expected to show a downward revision of -1.8% q/q from the last estimate of -1.0%.  The level of importance placed on GDP, despite the fact it is revised three times, is still something comical about Wall Street.

Fairly quiet radar today ahead of the next round of storms to hit the Midwest the next several days.  Rains are still expected to start up later today in the WCB and Northern Plains with 0.40-0.50” seen across much of NE/SD/NE/MT while KS/OK will see similar to heavier amounts the next 24-hours.  The pattern remains active in the aforementioned states as well as MN and IA the next 3-days with projected 3-day rainfall totals hitting 1.8-2.4” in parts of ND/SD and S-MN.  The deluge of water witnessed the past 3-weeks looks as though it will get worse this week in some of the Northern Plains states.  The 5-day forecasted precip map below shows the sizable totals expected.  6-10 and 8-14 day maps continue to show normal to above normal precip across the Midwest, although temperatures are rising to above normal east of the Mississippi River.  Temps will need to be monitored as we get into July.

 

Mixed to weaker markets this morning as grains head lower, but soybeans claw back small gains led by new crop.  Doesn’t seem to be any notable change to the current liquidation trend in place ahead of the June 30th reports with managed money ignoring cash and spread signals in favor of what continues to be ideal growing weather for corn and soybeans in most areas of the corn belt.  Concerning to some is the still large amount of open interest left in the July corn with first notice day occurring Monday, the same day as the June 30th reports.  As of this morning, July open interest totaled 142,391 contracts, compared with 89,727 contracts a year ago.  This could be a further downside catalyst with funds still net long corn and needing to pare positions by Friday.  Average trade estimates were released yesterday by Reuters and Bloomberg, and the most notable thing to stick out is the seeming lack of confidence in the trade on the stocks report.  For corn, the range of estimates is around 900mbu wide,  or nearly 25% of the average trade guess.  Should be noted the range would fall by half if one analyst on the low-side was removed. On soybeans, the range of estimates goes from 440mbu down to 334mbu, or 28% from the average trade guess.  The report could prove especially volatile.  Acres should take a back seat with fairly tight ranges from the March 1 prospective planting numbers, although the range on soybean acres is nearly 4.0 million wide.  The surprise, in either direction, should be focused on soybeans.

The notable feature in cash markets yesterday was the strength in soybean basis.  FH-July CIF bids for soybeans pushed to +80N, while LH-July held firm at +73N.  With 365%-355% barge freight, this equates to 10-17c above gross delivery equivalence in Zone 3 which should all but guarantee no deliveries on FND.  In fact, given tightening domestic cash, it could mean delivery certificates get canceled and barges be placed for load-out.  As of last night’s CME Registrar report, there were 150 soybean certs registered for delivery (all in Zone 3), with 21 at CGB houses, and the other 129 at Commercial-Z’s house.  Were this isolated to the river, it probably wouldn’t be as notable, but Chicago beyond rail was firmer, and WCB crush plants were said to be paying pushes ranging from 5-10c to 15-25c depending on location.  Given the strength in Brazilian FOB premiums the past several weeks, and the likelihood imports from that source have all but stopped on new purchases, it raises the prospect not only will the USDA’s 90mbu of imports prove high, but the rationing to take place on exports and crush isn’t over just yet.  Monday will answer a few questions, but the cash strength is a major feature in our markets.

One other note on cash markets, Argentine corn premiums remain stubbornly high at +75/80N vs. US FOB premiums around +67N for spot and +73U for August.  Brazil remains bracketed between +80N for spot and +75U for August-December.  Argentina’s corn harvest still stands at only 50% +/- which is 5-8 weeks behind averages thanks to heavy rains.  Eventually, SAM supplies should compete with US supplies head on, but that day ain’t today my friend.

Deliverable stocks at several wheat elevators jumped materially in the last week, signaling the start of harvest in many areas.  The biggest jump occurred at the Mississippi River SRW locations where weekly stocks went from 408,000 bushels last week to 10.045mbu this week.  Quality in the Delta is said to be a major concern with low test weight and vomitoxin concerns, but the WZ/WH, WH/WK, WK/WN and WN/WU all hit fresh contract lows yesterday which seems to be the market signaling it is okay with expected supplies in Ohio-River delivery location areas.  We shall see as harvest progresses.  HRW delivery supplies are growing in Hutchinson, Salina and Wichita but have yet to move higher in Kansas City, highlighting the slow pace in the North.  More moisture this week isn’t going to help.

Ethanol margins continue to ease with MN-spot ethanol margins as complied by www.rjomrt.com with the latest week showing $1.06/gln vs $1.13 last week and $0.91 a year ago.  DDGs prices continue to be the main culprit, although falling ethanol prices aren’t helping either.  Today’s weekly ethanol production will be watched closely given last week’s record 972,000bbls/day figure.  Driving season will be hitting its peak soon, and the massive production should eventually lead to a backup in supplies even if exports are strong.  Couple it with weak DDGs prices and margins could get tight the next several weeks.  Hog and poultry crush remains well in the black, while cattle feeders struggle with $210/cwt feeder prices.

Bloomberg carried a story which can be found here http://www.bloomberg.com/news/2014-06-25/crop-sowing-delayed-by-weak-india-monsoon-stoking-prices.html on the Indian monsoon which is off to its weakest start in at least five years.  Rainfall is 38% below the 50-yr average since June 1, the least since 2009, according to the India Meteorological Department.  This is delaying sowing of many crops, and needs to be monitored closely given the volatility which has been seen in Indian food supplies over the past 10-years.  The last several years have witnessed record harvests for many crops, the planting season is so far off to a slow start.

 

Bottom Line: Grains look like they’ll continue to struggle today with weekly ethanol production monitored closely.  Soybeans are throwing some strong signals from cash markets that the rationing process is not yet complete, although few are going to want to step in front of Monday’s reports with any sizable positions given the volatility always present with quarterly stocks reports.  Continue to stress test marketing plans against these prices and lower prices.  Pictures of flooded fields from social media can’t be one’s marketing plan.

 

Good Luck Today.

 

HPC 6-25

 

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.

6/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index down 0.0580 at 80.2150; Euro is up 0.00190 at 1.36270; S&P’s are down 4.25 at 1948.75; Dow futures are down 29.00 at 16,811.00; 10-yr futures are up 0.16%; The Nikkei closed up 0.05%; The DAX is up 0.02% at 9,922.70; The IBEX-35 is down 0.01% at 11,117.20; Gold is up $6.50 at $1324.90; Copper is up $0.70 at $314.90; Crude Oil is up $0.07 at $106.23; Heating Oil is up $0.0030 at $3.0435; Paris Milling Wheat is down €1.50 at €187.00/MT.

Muted global equity markets as the DJIA fell yesterday for the first time in seven days, and the lack of volatility has grown to the point contrarian’s are really beginning to lick their chops.  As an example,  www.sentimentrader.com pointed out the put/call ratio on the CBOE’s Volatility Index has dropped to 0.1, meaning for every 1,000 put options there are only 100 calls open.  Obviously the options pit is positioning itself heavily for a drop in the S&P 500 in coming weeks.  New home prices for April from FHFA are expected to show a solid gain of +0.5% m/m, adding to the +0.7% gain witnessed in March.  New home sales data for May is also expected to show an increase of +1.6% to 440,000 units which would add to the 433,000 units in march.  New home sales posted a 5 ½ year high in January of 457,000 units but have fallen off since.

More precip falling across western parts of the southern plains as well as moving across IL/IN/MI/MO, keeping the corn belt cool and moist.  This week remains an active one for almost all growing areas of the Midwest as the southern and northern plains will see rain the next 3-days with heaviest totals in KS/OK/N-TX where 0.50-1.70” is expected.  The northern plains will see a general 0.25” while ND/N-MN will see upwards of 0.70” in spots.  The weekend brings additional moisture to the northern plains as central and southern MN sees another 1.0” which should exacerbate flooding problems on the various rivers there.  The Dakotas will also see moisture out of that system.  IA sees 0.50-1.00” early next week.  Nothing threatening in the way of lack of moisture or oppressive heat in the 6-10 and 8-14 day outlooks.  Weather remains a non-starter through July 7th according to NOAA.  Keep calm and carry on.

 

Weakness throughout the evening session last night as crop conditions came in about as expected, but traders don’t seem to be sinking their teeth into the “too much rain” argument at this point.  While the flooding in parts of NE/SD/MN/IA is a major concern for the affected farmers, the majority of the corn belt has been receiving timely rain with mild temperatures, keeping the idea of record row crop yields squarely on the table.  In addition, there seem to be more and more demand concerns for corn popping up on the new crop balance sheet, especially export pull from China who is dealing with massive stocks which are going out of condition.  The double whammy of growing supply and shaky demand is unnerving the bulls, leading to bounces being sold not bought.  Volatility should subside in the ramp up to the June 30th reports, but that isn’t necessarily a good thing for bulls as trends are down.

Crop progress report out last night showed the national corn condition dropping 2pts to 74% G/E, in-line with expectations.  Largest declines were IA (-4), MN (-7), SD (-3) and WI (-3).  Soybean conditions fell 1pt to 72% G/E with large declines witnessed in SD (-8) and MN (-10).  Soybean conditions are still rated the highest since at least 1986, while corn is the highest rated since 2000.  The weakness, despite the declines, seems to be tied to the idea our early season ratings were too high and the needed correction is being applied.  Still, the declines aside, our crops our still very highly rated for late-June.  Spring wheat conditions fell 1pt to 71% G/E, but would compare with 61% last year and is sitting just below the 5 & 10-yr averages.  SD saw a jump of 6pts while MN was down 9pts.  Winter wheat conditions were unchanged at 30% G/E and harvest sits at 33% complete with KS at 24% complete.

Interesting article yesterday from Reuters which said Brazilian dock workers have negotiated an ordinance with the ports which allows them to stop working when the Brazilian national soccer team plays.  Port reps said this is “unprecedented,” but also probably necessary considering the tensions between dock workers and port owners in years past.  While this isn’t the sole reason, Brazilian FOB basis does continue to hold steady or firm on both corn and soybeans with spot FOB bids at +42N and +82Q for August vs +8N and +63Q a week ago.  Brazil also remains $1-3/MT higher than US corn through December.

Two major international wheat tenders over the weekend continued to reflect the premium US wheat is carrying relative to its exporting competition.  Egypt bought 180,000MT of Black Sea wheat from Russian and Romania at $262/MT C&F while the lowest US offer was $292/MT C&F.  Russian wheat prices have continued to fall in recent weeks with FOB offers now around $250/MT FOB vs $260/MT FOB the week before according to SovEcon.  Ideas of the Russian wheat crop have begun creeping back higher after concern over dryness in May and early-June.  Reuters released a poll which showed analysts pegging the Russian wheat crop at 53MMT, up 2% from a year ago.  Exports are seen at 19MMT which would be up slightly from 2013/14.  Also worth noting, Argentina’s FOB prices have come down sharply with last night’s offers at $335/MT FOB (+198N) vs $375/MT FOB (+308N) a week ago, although well placed cash traders said Argy wheat still isn’t trading any material tonnage.  Seems like US wheat is finding more competition by the day, and there just isn’t a major production issue outside of the US, which even that doesn’t seem as dire as a month ago based on yield reports flowing in from KS.

Several news outlets reported ethanol RIN prices jumping sharply late last week to 64c/gln vs 48c/gln last Wednesday.  Rumors were the EPA would soon release its revised 2014 blending rules which some thought would be pushed back until fall.  Most think the requirement will be somewhere around 13.5 billion gallons vs the initial proposal for 13.0 billion, but still below the 14.4 billion gallons required by the RFS.  This much is certain: ethanol production margins are solid and will encourage production, and the RBOB/Ethanol spread remains conducive to blending.

 

Bottom Line:  Markets look like they want to be lower today, and it’s hard to argue with given current condition ratings, moisture to date and moisture forecast.  Aside from some localized flooding, crops are developing well in nearly ideal conditions for both row crops and spring wheat.  Equities continue to make new highs by the day, diverting additional capital away from our space.  There isn’t an underlying bullish catalyst to change trends right now, although the June 30th reports have often been labeled “game changers.”  Better living through lower prices.

 

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.

6/23/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.00020 at 80.3710; Euro is down 0.00110 at 1.35850; S&P’s are unchanged at 1953.25; Dow futures are down 6.00 at 16,852.00; 10-yr futures are up 0.09%; The Nikkei closed up 0.13% at 15,369.28; The DAX is down 0.38% at 9,948.85; The IBEX-35 is down 0.12% at 11,141.80; Gold is down $4.10 at $1312.50; Copper is up $2.55 at $313.85; Crude Oil is up $0.15 at $106.98; Heating Oil is up $0.0012 at $305.97; Paris Milling Wheat is up €0.50 at €188.75/MT.

Solid economic data out of China last night failed to offset weaker numbers from Europe to keep global equities off balance to begin the week.  The HSBC preliminary purchasing managers index for China rose to 50.8 compared with the final reading of 49.4 in May, putting it above the 50.0 expansion/contraction line.  This noted the first time the index had moved above the expansion line in six months.  The same index for the Eurozone fell to 52.8 from 53.5 in May, drug down by France where activity declined for the second straight month at a quickening pace.  S&P 500 futures rose to new record highs overnight of 1959.00,  and the VIX remains especially depressed, highlighting the complacent state of equity markets at current.  We still haven’t had a 1% move in the S&P 500 in over 45 sessions.

Several systems at work this morning with rain moving across TX/OK/NE and a separate cell dropping rain in WI/IL/MI.  Weekend rain fell with heaviest totals in NE/W-IA/IL/SD with localized totals north of 3.0”.  The next 3-days sees rainfall mainly in the southern plains where totals as high as 2.50-4.00” are forecast in E-TX/AR, but all of the southern plains is slated for rain which will further hamper harvest efforts.  Additional rainfall will be seen by mid-week in the Northern Plains with 0.50-1.70” is expected in most of SD/ND/MN.  Extended maps from NOAA sees temperatures to warm to above normal beginning June 28th, while precip stays mainly above normal as well, although the southern plains look as though they will dry out a bit.  Similar pattern for the 8-14.

 

Stronger markets out of the gate last night, and continuing that trend this morning led by soybeans which find most contracts up 11-18c on ideas of declining conditions on this evening’s crop progress report.  The heavy rainfall witnessed in places in the WCB and Northern Plains seems to be resonating a bit with the trade as does the still tight balance sheet on old crop.  Most expect a further 1-2pt drop in the national soybean condition index on tonight’s report.  The June 30th reports are just a week away, and while many think the USDA will hint at the idea the 2013 soybean crop was understated, the rate of crush and export demand just won’t allow much margin regardless of what the USDA prints for a Q3 residual demand number.  After dropping to $13.93 on Wednesday, July soybeans have tacked on 40c and seem content to defend $14.00 until more clarity is attained on the supply side.

Friday’s Commitments of Traders report showed massive selling pressure in soybeans by the large spec crowd as they dumped 39,433 contracts, the fourth largest single week of selling on record.  This took the large spec position down to net long 1,074 contracts, the smallest net long since August 6th, 2013 when funds went short for a week before beginning to buy again.  What’s more, the net commercial short is only -71,797 contracts, the smallest net short since March 10th, 2009.  The soybean market has taken the brunt of the selling pressure head on, and it would seem as though large specs won’t be in too big of hurry to initiate a big short position considering all of the major development weather is still in front of us.  This too should prevent a ton of further downside pressure. Also worth noting, the Gross Commercial Long in soymeal is now long 101,616 contracts, the largest since 12/20/11, showing end users still have a large interest in owning soymeal at these kind of levels.

DDGs prices continued to drop last week with the Iowa weekly DDGS vs Corn price ratio dropping to 90.62%, the first time a ton of DDGs has been less than a ton of corn in Iowa since August of 2013.  We’ve now seen DDGs prices in Iowa fall form nearly $250/ton to $145/ton over the course of the last 3-months, and puts more competition for soymeal in hog and poultry rations.  Without the demand pull from exports to China, the largest importer over the last year, domestic supplies will remain heavy and prices depressed.  This has the potential to slow ethanol grind rates as well as margins contact.

Updated map from NOAA shows the Minnesota River at Savage, MN with major flooding still to occur by mid-week.  The river level needs to be below 702ft before barges can be placed underneath loading spouts, so it doesn’t look like Savage will be able to supply any corn or soybeans to the export market until after the 4th of July holiday.  This among other things is helping to keep CIF bids firm, and most delivery zones on the river well above gross delivery equivalence.  CN/CU at +5.0c with current delivery economics should have a tendency to firm from this level as opposed to weaken.

Travels to southern Saskatchewan over the weekend took me through a large slice of US-HRS country.  We traveled from Gettysburg, SD north on Hwy-83 all the way to Minot, ND before jogging west to Kenmare, ND and north into Canada on our way to Arcola Saskatchewan.  The crop in northern SD and most of ND looks to be in great shape.  Deep green with a generally even stand look as though ND is on tap in many areas for another large wheat crop.  Canada looks very wet, however, with a real need for heat and sunshine.  Excessive rainfall in Sask has left a very uneven crop with standing water and delayed development.  The map below from World Weather, Inc. shows the topsoil conditions in Canada over the last week.  As one can see, conditions are extremely wet in many areas, and Canadian producers have called the crop about a month behind normal.  No one is writing off another large Canadian wheat crop, but conditions to date aren’t ideal, and a change going forward will be needed to prevent disease and development issues.  Hard to argue with the USDA’s current 28.5MMT wheat production estimate vs last year’s 37.5MMT crop.

 

Bottom Line:  Call markets firmer today as we ready for more rain in areas which don’t especially need it at the moment, and the same water keeps southern plains harvest efforts delayed.  Row crop prices also want to be firmer on excess rainfall, and in the ramp up to the June 30th reports.  Development weather is pretty good for many areas of the corn belt, but the trouble areas do seem like they’re grabbing more attention and keeping acreage ideas a mystery.  Farmers also aren’t in a big hurry to sell remaining old crop which will keep cash supported.

 

Good Luck Today.

 

Savage 6-22 Canadian Top SOoil 6-23

 

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.

6/20/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index up 0.0420 at 80.3570; Euro down 0.00040 at 1.36070; S&P’s are up 0.75 at 1959.25; Dow futures are up 14.00 at 16930.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.08% at 15,349.42; The DAX is up 0.27% at 10,030.91; The IBEX-35 is down 0.12% at 11,173.90; The Russian MICEX is down 0.36% at 1,489.67; Gold is down $2.20 at $1311.90; Copper is up $1.5 at $309.10; Crude Oil is down $0.01 at $106.02; Heating Oil is down $0.0037 at $3.0562; Paris Milling Wheat is up €0.25 at €188.50.

Would appear as though the Federal Reserve-high global equity markets have been trading on is finally fading out as bourses around the world trade rather subdued heading into the weekend.  News from the major financial media is almost non-existent this morning as even the Iraqi conflict is receiving precious little coverage aside from President Obama deciding to send 300 ‘military advisors’ into Iraq, but remains steadfast about not engaging in another war there.  Iraq’s government is desperately trying to hold off extremists at the Beiji oil refinery which has a capacity of 320,000 barrels per day.

Two systems on the radar this morning with one moving across W-ND and another hitting WI and the Great Lakes.  5-day radar returns from the upper-Midwest show moderate to heavy rainfall across the entire area with portions of IA/S-MN seeing up to 6-8” this week alone.  It felt like the market was finally responding to the water-logged fields during yesterday’s session, although many areas still have crops developing in near ideal condition.  The weekend will see rain fall in KS/NE/IA/N-MO/IL with heaviest totals along the NE/KS border where up to 2.6” is being forecast, but a general 0.50-1.00” is expected.  The rest of the corn belt will see rain Monday-Wednesday.  No real changes to extended maps as temperatures look to remain non-threatening while the Northern Plain is still slated for a bit drier weather, while the ECB remains above normal.

 

Easier markets to begin the last trading day of the week with bulls and bears still vying for control as currently wheat is up 5c since last Friday, corn up 2c and soybeans down 10c.  Condition reports on Monday will be a focus as the excess water in parts of SD/NE/IA/MN are grabbing a lot of attention via social media, but crop conditions should better reflect the overall status of the crop in these select states.  Several analysts are still keeping open the potential for record breaking yields of 165bpa+ on corn and 45bpa+ on soybeans.  So far, one can’t rule those out provided the weather remains ideal.  With those type of yields, carryouts will balloon, and prices will remain under pressure.  We’re a long way from a 1.7bbu and a 350mbu carryout, respectively, however.  Wheat markets are trying to retain some measure of premium for the moisture expected to disrupt harvest in KS this weekend.

The Minnesota River pushed above 702 ft. yesterday, bringing barge loading to a halt at the four elevators in Savage, MN.  It looks as though these elevators will remain offline until close to July 7th according to the NOAA forecast.  CIF corn and soybean bids held steady yesterday, and the CN/CU continues to trade near +6.00c.  Based on the river trading 5-17c above gross delivery equivalence, there doesn’t seem to be a lot of reason the CN/CU doesn’t head towards 10.0c in my opinion.  Yesterday’s rally barely moved the marketing needle for the farmer, and the crop remains miles away from throwing tassels in the heart of the corn belt.  The KWN/KWU continued to tack on premium, rallying to +4.00c yesterday as harvest remains dreadfully slow in Kansas.  No changes to 12.0% protein HRW, bracketed at +110/120N.

Old crop board crush continues to trade softly with the July dropping to +18.5c yesterday before settling at +21.0c.  July appears to be tracking 2013 fairly closely as last year board crush dropped all the way to -2.0c/bu by June 26th, but recovered to trade up to 70.0c while in delivery.  Soymeal basis remains under pressure thanks to the higher availability of domestic DDGs and the Chinese trade dispute.  Technically, soybean charts have held some key Fibonacci retracement levels, and momentum appears as though it has bottomed and is trying to trace out a divergence.  New crop soybeans don’t appear to want to trade below $12.00 just yet, having tested that level several times the last couple weeks.  There is a lot of grass between the ball and the hole on soybean development, so we’re not ready to give the farm away just yet.

Reuters published an article yesterday quoting an official with the Chinese National Development and Reform Commission who said the government is seeking opinions on how to deal with their “massive corn stocks” before this year’s harvest.  The government stockpiled more than 90MMT of corn over the last two-years to leave total stocks near 150MMT with supplies going out of condition.  Opinions so far include lowering the bidding prices for its weekly sales, as well as offering subsidies and tax incentives to loss-making industry processors.  The current stocks situation in China reflects how poor their infrastructure is given their stocks levels, yet it is still cheaper for feedlots and corn processors in southern China to import corn from the US than buy supplies from the north.

 

Bottom Line: Call markets softer to get started, although more short-covering going into the weekend wouldn’t be a total surprise either.  Traders will be anxious to get additional yield reports from KS as harvest progresses north, and to assess quality after the forecasted rains.  Corn and soybeans continue to receive mostly beneficial weather aside from the trouble pocket in MN/IA/SD/NE, so a sustained rally will be difficult to mount if adverse conditions are limited to 5-10% of the crop.  Cash and spreads say weakness should be limited, but right now crops appear to be getting bigger.

 

Good Luck Today.

 

rfc 6-20 Savage 6-20

 

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.

 

6/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index down 0.3560 at 80.2240; Euro up 0.00680 at 1.36310; S&P’s down 0.25 at 1956.75; Dow futures are up 2.00 at 16900.00; 10-yr futures are up 0.29%; The Nikkei closed up 1.62% at 15,361.16; The DAX is up 0.81% at 10,010.49; The IBEX-35 is up 0.95% at 11,218.10; The Russian MICEX is up 0.62% at 1,503.61; Gold is up $9.20 at $1281.90; Copper is up $0.70 at $306.80; Crude Oil is up $0.45 at $106.04; Heating Oil is up $0.0049 at $3.0450; Paris Milling Wheat is up €1.00 at €189.50/MT.

Global equity markets are rallying today after the Fed signaled that US interest rates would remain at record lows until the US economy was seeing a steadily improving job market and modest inflation.  Despite the fact the unemployment rate has moved under the original 6.5% target, and equities continue to hit new record highs, Fed chair Yellen said there was no need to raise short-term rates from record lows anytime soon.  This has put the US Dollar under heavy pressure, hitting the lowest level since May 27th on the news.  Weekly unemployment claims are expected to show a decline of 5,000 to 312,000, reversing last week’s 4,000 claim increase.  The Philadelphia Fed index is expected to show a -1.4 point decline to 14.0, adding to the small -1.2 point decline in May.

Shower activity working across MN/IA/WI/IL as well as OK this morning following another night of severe weather, this time in South Dakota and the town of Wessington Springs.  As many as 20 homes were either severely damaged, destroyed or uninhabitable after last night’s tornado.  Rainfall totals continue to stack up over the water-logged Northern Plains with another 0.25-1.00”, and in some localized areas 3.0”, falling in parts of NE/SD/ND/MN in the last 24 hours.  The map below shows the rainfall since Monday.  Several areas in SD/MN/IA/WI/NE have seen totals between 3.0-10.0” since the beginning of the week.  Pictures of crops standing in water are becoming common, but many crops are benefitting from the current weather pattern.  More rain expected the next 3-days, with heaviest amounts where they don’t need it.  SE-SD/N-IA/S-MN are slated for another 1.0-2.5” through Sunday.  KS/MO/S-IA are expecting rain Sunday-Tuesday with heaviest amounts in E-KS at 2.50”.  No big changes to extended maps with the Northern Plains seen getting a stretch of drier weather in the 6-10 and 8-14 which would be welcome.

 

Green across the screen again this morning led by the wheat market which is tacking on 7-9c as we head into the seven o’clock hour.  The bounce in wheat seems to be largely technical in nature after the nearly month long sell off, but concerns are being raised about winter wheat harvest in both the southern plains and Delta.  Despite the fact progress is behind normal, ripened wheat is now being hit with rain which can degrade quality.  The market’s concern has been expressed through calendar spreads and basis this week with the KWN/KWU pushing to +1.75c yesterday, the highest trade for the contract since May 15th, 2013.  High protein spring wheat basis has been improving as well with 14.0% pro up 30-35c yesterday to +235/275N vs +160/180N a week ago.  Late yesterday it was reported Brazil has also approved another 1MMT of duty-free non-Mercosur wheat imports through August 15th, 2014, which could be supplied by the US.  The aforementioned isn’t enough to reverse the losses sustained in June, but it definitely argues for a near-term bottom which the market seems to be granting.  To really turn the technical buying switch on, however, July Chicago wheat would need to see trade above $6.26-6.29.  Momentum indicators are indicating a bullish divergence and On-Balance-Volume has bottomed and is rising, both positive signals.

The big surprise in yesterday’s session was the 8:00am announcement of 140,000MT of soybeans being sold to an unknown destination for the 13/14 crop year.  This is the kind of business the old crop balance sheet can’t afford to be doing, and many began to think it was a reporting error by the USDA.  Whatever the case, FOB Brazilian soybean basis continues to appreciate, lending credence to the idea of an old crop sale.  As of last night, spot Brazilian soybean basis was quoted at +35N with August at +75Q vs +8N and +63Q yesterday.  A week ago, the spot bid was -25N and August was +42Q.  So in a week’s time the spot soybean bid has rallied 60c, or about as much as the futures board has sold off since last Thursday.  With the basis rally, imports of Brazilian soybeans should all but stop, and it even raises the question of whether the sales to the US on the books will be executed or routed to another destination?  The story in old crop soybeans is far from over.

The second chart below shows the Mississippi River flood forecast for St. Paul.  It was reported yesterday barge loading in Savage, MN on the Minnesota River would come to a halt until July 1st due to high water.  As one can see from the chart below, moderate flood stage is expected to be hit in downtown St. Paul sometime around June 25th.  The current precip forecast will exacerbate the situation, and while Savage, MN isn’t the Illinois River district, it does take available supply off the export market.  This should help CN/CU and export premiums hold firm in the near-term.  Corn basis as a whole seemed to hold steady to even firm a bit yesterday with PNW corn shuttles bouncing back to +107/108N for JJ.

Weekly ethanol production hit a new record for the weekly data series going back to June 2010 yesterday, highlighting the solid margin structure which exists in that industry.  Weekly production of 972,000bbls/day compared with 944,000 the week before and the 899,000 needed to hit the USDA’s current ethanol production forecast.  With the past several weekly production figures, the USDA is likely to raise their ethanol demand for corn forecast on the July WASDE assuming no big surprises on the June 1 stocks report.  Interestingly, stocks also saw a draw despite the big production jump with weekly stocks declining to 17.850 million barrels, down 572,000 on the week.  Weekly gasoline demand also surged higher in the latest week after two weeks of sharp decline, raising the prospect for further stock declines in coming weeks.

Weekly exports sales out later this morning should provide further price guidance for the balance of the week.

 

Bottom Line: Firmer prices again today as grains bounce from their oversold condition.  More and more press being given to the water-logged crops in the north, although many quick to point out for every low spot there are two hillsides.  Too early to understand the full impact, but top end acres could be in for both corn and soybeans.  Cash markets are trying to pry grain loose from farmer hands to no avail as the price and calendar aren’t enticing anyone to sell just yet.  Continue to watch technicals for short-term signals in the ramp up to the June 30th reports.

 

Good Luck Today.

 

RFC 6-19 Miss River St Paul 6-19

 

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.

 

6/18/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0870 at 80.5420; Euro up 0.00250 at 1.35720; S&P’s are up 0.25 at 1941.75; Dow futures are up 5.00 at 16810.00; 10-yr futures are up 0.13%; The Nikkei closed up 0.93% at 15,115.80; The DAX is up 0.24% at 9,943.72; The IBEX-35 is up 0.44% at 11,107.10; The Russian MICEX is up 0.44% at 1,492.94; Gold is down $1.40 at $1270.60; Copper is up $0.20 at $306.00; Crude Oil is up $0.32 at $106.66; Heating Oil is up $0.0046 at $3.0226; Paris Milling Wheat is up €0.75 at €187.50.

More hurry up and wait on the Federal Reserve, who should issue their latest monetary policy decision later this afternoon.  Most investors expect the scale back in stimulus, but many are anxious to see if the Fed hints at all when they may begin raising short term interest rates.  The market is currently anticipating a 25bp rise in the federal funds rate to +0.50% by September 2015, leaving another full year of zero interest rates.  The good folks at Sentiment Trader updated their study discussed last week, which now shows the S&P 500 has gone 42-trading sessions without a 1% move while also rallying 4% over that span.  This has only occurred nine other times since 1928, although results are mixed going forward on market performance.  On average, the next six months tend to show positive returns.

Severe storms moving across the Dakotas and MN this morning bringing heavy wind and rain to localized areas as the string of intense weather in the WCB this week continues.  Severe flooding has occurred this week in portions of SE-SD/NW-IA/S-MN where as much as 5-10” has fallen just this week alone.  Localized flooding of crops has been reported.  The next 3-days sees additional precip to fall in ND/MN/IA/WI/IL/IN/OH with totals varying from 0.50-2.5” with the heaviest totals in IL/IN.  The pattern remains active with additional moisture dropping in the central plains and southern Midwest at the tail end of the week and beginning of next week.  6-10 and 8-14 day maps are beginning to put in some more feature with the Northern Plains seeing above normal temps, but below normal precip. The rest of the Midwest sees generally above normal precip.  The 6-10 temp and precip maps are below.

 

Relief bounce overnight led by wheat which appears to be showing the best case for bottoming of the three major Ag markets.  It’s far too early in the technical set up to suggest a bottom is in, but the combination of waning downside momentum, declining volume, bearish public opinion and a growing managed fund short position could all be conspiring for at least a corrective bounce higher.  Southern Plains wheat harvest looks as though it could become more delayed this week/end with additional precip moving across that region, and quality will also remain a chief concern.  Calendar spreads in the KC futures have also been appreciating with the KWN/KWU pushing back to even money in the overnight session.  This combination of firm basis, firm spreads and waning downside momentum cautions against pressing to the downside at current levels in my opinion.

One notable feature this week has been the basis appreciation in FOB Brazilian soybean premiums, quoted last night at +8N for spot and +63Q for August.  These would compare with -27N for spot and +40Q for August a week ago.  This strength will have to be monitored closely, as if it continues it could run the risk of seeing current Brazilian purchases on the books to the US canceled in favor of other destinations.  US domestic crusher basis has actually weakened this week.  All of the aforementioned seems to be strengthening the argument for an understated 13/14 soybean crop given domestic basis levels vs a year ago.  PNW new crop soybean shuttle basis firmed yesterday with SON worth +168/162/160X vs +163/160/155X a week ago.  Center Gulf premiums are also firmer by 3c vs published values a week ago.

Some decent moves in spreads this week worth noting.  One of the largest movers on a relative basis has been the CU/CZ which touched -5.75c yesterday after trading to +1.75c at the beginning of the month.  This spread has the potential to get ugly in a hurry if things fall into place correctly: early Delta harvest; delayed Argy/Braz corn supplies finally hitting the market in August; large old crop on-farm supplies finally moving to market.  This spread should act as a proxy for early harvest in the south and old crop producer supplies.  There is a lot of corn left on farm which has to make room for what appears to be a growing new crop.  Along the same lines, the “canary in the coal mine” for new crop, the CN15/CZ15, continues to trade weakly.  Yesterday the spread hit +5.50c after printing +17.50c at the beginning of June.  No hint of concern as of yet for the 2014/15 corn crop.  Lastly, worth noting the huge outside reversal in the MWU/MWZ yesterday, going from -10.50c at the open to -12.50c during the session.  Day-to-day moves can be attributed to many things, but this spread has been trending lower since mid-May and reports suggest solid HRS prospects in the Northern Plains this year.

Weekly domestic margins as complied by www.rjomrt.com continue to suggest healthy demand for US corn.  Ethanol margins continued sliding last week with gross margins now sitting at $1.13/gln vs $1.27/gln the week before but still well above the $0.78/gln from last week.  DDGs prices dropped $25/ton last week while ethanol and corn prices offset.  Poultry margins also eased, but remain just off record levels at 89.78c/lb.  The continuous hog crush improved to $139.34/hd from $138.66/hd and compares with $80.37/hd last year, although off from the highs of $170.00/hd a few weeks ago.  Cattle crush remains abysmal at $84.23/hd vs $211.14/hd at this time last year.  Feeder cattle prices at $207/cwt don’t crush into $150/cwt fats all that well.  Vertically integrated vs those which aren’t.  C-IL soybean crush margins remain strong at $1.04/bu vs $1.11/bu last week and $0.69/bu last year.

Weekly ethanol production will be released at 9:30am today and traders will be watching closely for any signs of production slowdowns given the apparent backing up of US-DDGs exports onto the domestic market.  Whether the recent string of production levels over 920,000bbls/day can be sustained the next couple of months will have a lot to say about not only current balance sheet projections, but fair market value for corn.

 

Bottom Line: Markets appear as though they want to be higher heading into the seven o’clock hour, but that hasn’t mattered much for where prices will close at 1:15.  Most of our markets are reaching depressed levels from which a technical short-covering bounce can/should occur.  Conditions are strong, weather forecasts are non-threatening and grains aren’t in short-supply here or abroad.  US producers have grain to move before the next harvest, and how orderly that comes to town will have a big impact on cash going forward.  Even a dead cat will bounce.

 

Good Luck Today.

 

6-10 Temp 6-18 6-10 Precip 6-18

 

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.

6/17/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.0240 at 80.4940; Euro unchanged at 1.35720; S&P’s are up 0.50 at 1937.00; Dow futures are up 9.00 at 16,783.00; 10-yr futures are unchanged; The Nikkei closed up 0.29% at 14,975.97; The DAX is up 0.14% at 9,898.29; The IBEX-35 is up 0.20% at 11,030.50; The Russian MICEX is down 0.63% at 1,484.46; Gold is down $8.80 at $126.50; Copper is up $1.40 at $305.80; Crude Oil is down $0.62 at $106.28; Heating Oil is down $0.0095 at $2.9884; Paris Milling Wheat is down €0.50 at €187.25/MT.

Very quiet global equity markets overnight as investors await the Federal Reserve’s FOMC decision later this week.  Economic data in the US today will include the May CPI which is expected to be up +2.0% y/y and unchanged from April.  Inflation statistics are on the upswing, which supports the Fed’s decision to taper.  However, the PCE deflator, the Fed’s preferred inflation measure is still well below the Fed’s 2.0% target down at +1.6%.  May housing starts out today are expected to show a decline of -3.9% to 1.030 million following the 13.2% surge to 1.072 million in April.  Building permits are expected to be down -0.9% to 1.050 million following the +5.9% rise to 1.059 million in April.

Systems moving across IA and the Great Lakes this morning, adding to the nice rainfall totals the past 24 hours in E-SD/S-MN/E-NE/IA/S-WI.  Severe weather moved through parts of NE and SE-SD yesterday evening with multiple tornadoes being reported.  There continue to be reports of damaged crops in NE by severe weather the past 2-weeks.  Another round of storms move through the WCB and N-Plains tomorrow into Thursday and should bring heavy rains to the same areas with localized totals in ND reaching 2.2”.  5 and 7-day forecasted totals keep things wet through the weekend for the majority of the corn belt and southern plains.  Major changes for the 6-10 and 8-14 day maps include a drier bias for the WCB and Northern Plains which would be the first in several months  Temperatures are expected to remain normal to below, while the ECB keeps above normal precip in place.

 

Mostly weaker overnight markets led by the soy complex as conditions remain near the best of the last 30-years, despite the fact all old crop demand signals point towards tighter carry-outs.  Grain markets are following suit as corn conditions are also near the best in a couple decades, while wheat markets grapple with expanding harvest but concerns over harvest delays and quality downgrades.  US wheat remains expensive compared with other exporting nations, and wheat/corn spreads still prevent any sort of wheat feeding program to take place.  With the US corn crop developing as well as it is, one only needs to look back to the last record yielding corn crop in 2009/10 to see the impact on wheat demand.  This year, all-wheat demand is pegged at 2.121bbu, the lowest since 2009/10 and the third lowest of the last 15-years.  Exports in 09/10 were just 879mbu vs the expected 925mbu this year.  Production is definitely down from a year ago, but in a couple of months the North American wheat supply will be known and the overpriced status of US wheat will still be impacting our competitiveness.

Crop conditions bounced back higher last night with the corn conditions improving 1pt to 76% G/E, and would be the 2nd highest of the last 23 years behind only 2010. NE, NC and ND all saw sizable declines in G/E ratings, presumably due to excessive water the past week.  Conditions improving in MO/TX/KS helped offset.  Soybean conditions eased 1pt to 73% G/E vs 64% last year, and would be the 2nd highest of the last 30-years behind 2010. Declines were witnessed in nearly every state except KS/IN/OH/LA which makes it interesting the national rating was only down 1pt.  I found it interesting when looking at this year’s condition ratings vs the 5-yr average how much lower the ECB 5-yr averages are compared with the WCB.  For instance, the 5-yr average on corn for IL/IN/OH are 60%/60%/66%, respectively vs IA/NE/SD at 83%/75%/84%.  The 2012 drought year was obviously more severe in the east, but the same condition spread exists for soybeans as well.  Comments about crop conditions out of IL/IN continue to be nothing but excellent, highlighting how good the start is for those in the ECB.  National soybean planting progress was pegged at 92% vs 87% last week and 90% average.

Spring wheat conditions improved 1pt to 72% G/E and would compare with 75% for the 5-yr average.  Conditions in the main HRS growing belt of SD/ND/MN/MT remain pretty solid, but WA continues to drag the national prospects down with just 24% rated G/E vs the 5-yr average of 65%.  Drought has been in place since last fall in WA, and crop prospects are suffering accordingly.  Winter wheat conditions were unchanged at 30% G/E, while harvest was reported at 16% vs 20% average.  KS/CO has yet to really even register progress while TX/OK are close to the halfway point.  Early reports continue to suggest lighter test weight and higher protein so far with Plains Grains, Inc. reporting that of the 40 samples tested so far test weight averaged 59.6lbs/bu vs 59.9 in 2013.  Average protein content so far was 14.3% vs the 2013 average of 13.4%.

Yesterday’s NOPA crush proved stronger than pre-report estimates with NOPA members crushing 128.8mbu of soybeans in May vs estimates of 127.0mbu and vs. 122.6mbu in 2013.  Crush has been up an average of 8% over the last four months, despite the USDA marketing year forecast calling for an increase of just 0.6%.  Based on NOPA data to date, and adjusting for total US census crush, the June-Aug period needs to see crush down 8-9% from a year ago if the USDA’s 1.700bbu target isn’t to be exceeded.  This will prove a tall task given crush margins still sitting where they are.  If crush isn’t slowed down, it will raise the prospects the 2013 soybean crop was understated, which would be in-keeping with the lower basis levels y/y.  The June 1 stocks report will give us a solid clue as to the ‘13 crop size via the residual demand category.  A larger 2013 supply might be the only way to get to September 1st.

Further easing in destination rail basis on corn yesterday with the PNW/HETX/CGO all softer than Friday values.  The CN/CU certainly looks as though it is coiling for a decent move one direction or the other with overnight trade unchanged at +4.25c.  The river is still trading above gross delivery equivalence, which makes owning July futures as a supply source valuable.  The US farmer is in no hurry to sell his remaining old crop corn supplies given current prices and the development stage of his crop.  Widespread pollination isn’t expected to commence until mid to late July, so the next 30-days could get long for end users of corn.  Armed with healthy margins, cash basis should hold steady to firm, and the CN/CU will be a good proxy of that.  The SN/SX continues to dance on top of +200.00c, with overnight trade at +201.50c.  Demand continues to chug, but there are more and more skeptics emerging about the size of the 2013 crop.

 

Bottom Line:  Better living through lower prices today with superior growing conditions trumping any sort of old crop demand story the bulls want to drum up.  The spring love-affair the funds had with commodities seems to slowly be eroding, aside from crude and meats, while weather remains as ideal as one could hope for on June 17th.  Without a reason to get the managed money involved on the long side, and without a fresh physical demand impetus, we will be locked in our downward trending ranges.  We have to have a fresh bullish input and today we don’t have it.

 

Good Luck Today.

 

 

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.

6/16/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.0770 at 80.6530; Euro up 0.00080 at 1.35440; S&P’s down 4.75 at 1931.00; Dow futures are down 36.00 at 16,7333.00; 10-yr futures are up 0.13%; The Nikkei closed down 1.09% at 14,933.29; The DAX is down 0.22% at 9,891.26; The IBEX-35 is down 0.75% at 11,030.90; The Russian MICEX is down 0.37% at 1,495.64; Gold is up $6.30 at $1280.40; Copper is up $2.80 at $305.05; Crude Oil is up $0.11 at $107.02; Heating Oil is up $0.0060 at $2.9936; Paris Milling Wheat is up €1.25 at €188.50/MT.

Tension in Iraq remained elevated over the weekend with crude oil prices continuing to add risk premium on possible supply disruptions.  Reports say Iraq has entered a full blown sectarian conflict which has pushed crude to a high of $107.54/bbl, the highest trade since September 19th.  Iraq accounts for 11% of OPEC’s production, producing 3.300 million bdp in May.  The concern is Saudi Arabia cannot ramp up production quick enough to offset a big drop in Iraqi supply.  Investors are also preparing for this week’s FOMC meeting where the Fed is unanimously expected to leave its funds rate target unchanged and cut QE3 by another $10 billion to $35 billion per month.  The report calendar is also fairly heavy this week with tomorrow’s May CPI (+2.0% y/y), May housing starts (-3.9%) and Thursday’s unemployment claims (-4,000).

Very quiet radar returns this morning, although additional precip is expected later today in S-MN/N-IA/WI.  This week will be a fairly active one in terms of precip for the central/west corn belt.  The 5-day forecasted precip map below shows the expected moisture with heaviest totals forecast in MN/WI/N-IA where as much as 4.5” is expected in total.  Seems to be little in the way of weather threats for developing crops in the extended maps with the 6-10 showing gradually warming temperatures to above normal by June 21st, and precip is expected to be mostly normal for the Midwest.  8-14 has a similar blush, although the southern plains return to below normal precip which will be welcome for expanding wheat harvest.

 

Firmer prices across the board this morning as commodities find a bid on Middle East tensions, but in general grains seem to be finding a bit of support after last week’s losses.  Last week, July Chicago wheat lost 32c, July corn was down 12c and July soybeans lost 31c.  There are some minor concerns about the delays to wheat harvest in parts of the Delta and eastern HRW areas, and corresponding quality issues from excessive moisture.  This week should see a bit better harvest weather for SRW areas as well as western HRW territory.  HRW protein scales firmed on the week with 12.0% protein closing the week at +110/120N vs +85/95N on Monday.  Updated USDA data last week also put HRW abandonment at 22.5%, which follows last year’s 25%.  According to the data, this marks the first time with back to back abandonment over 22% since 2001/02.  The chart below shows abandonment going back to 1909.  The aforementioned no doubt having a positive influence on HRW spreads with the KWN/KWU pushing to -2.00c overnight vs a low of -8.00c Thursday.  Firming basis and spreads seem like clues to either crop size or quality, but which remains to be seen.

Friday’s Commitments of Traders confirmed heavy selling by managed funds during the reporting week with a combined 67,000 contract selling between corn, soybeans and Chicago wheat.  Within corn, funds sold 30,505 contracts taking their net position down to 85,661 contracts, the smallest net long since February 25th.  Gross Commercial longs have witnessed five straight weeks of buying, so end users are extending paper length even if physical length isn’t being sold by the farmer.  In soybeans, funds sold 20,407 contracts to take their net long to 40,507, the smallest position since August 13th.  Unfortunately, both commercial longs and funds are selling in soybeans, which provides even more support for the short-term downtrend.  The aggregate position across the three wheat exchanges witnessed sizable buying by commercials and selling by funds, so no change in trends there.  Across all Ag commodities, including grains, livestock and softs, managed funds have their finger firmly on the sell button.  Their net position is now down to 396,036, the smallest since February 18th, and bullish sentiment is down to 59% from 73% on April 1st.  New highs in equities isn’t being lost on commodity bears.

Rail corn basis was actually a bit softer to close the week last week with PNW corn shuttles down to +110/112N for JJ vs +118/117N to begin the week.  HETX basis also eased with closing bids at +90/92N vs +95N on Monday.  Changes in destination rail basis seem to be as much about rail performance as anything demand related with many describing RR performance declining markedly the past couple of weeks.  Doesn’t leave country shippers feeling very confident about the looming small grains harvest, and especially another bumper fall harvest provided weather remains benign.  CIF corn basis remained firm on the week with closing bids seen at +65/75N for June vs +65/67N last Monday.  CIF SRW offers appreciated noticeably on the week going from +38N last week to +53N on Friday.  Again seems to be harvest related given our premium to other world offers in the GASC tender.

Updated Iowa DDGs prices Friday showed continued price deterioration with the DDGs to corn ratio down to 1.09 from a high of 1.50 in late-Mar/early-Apr.  Outright prices have dropped from near $250/ton to close to $160/ton Friday.  Against soymeal, DDGs prices are now down to 35% of the price of soymeal which is around the lowest since mid-2010.  Generally, DDGs substitute for energy feeds like corn, although can be used as a protein substitute for soymeal.  Given that most rations are probably locked in through July for even the shortest term poultry rations, widespread substitution might not be evident until the August NOPA report released mid-month.

On a small tangent, worth noting feature retail prices at the grocery store and their price change over a year ago.  As of Friday, average retail price of a pound of beef was $4.94/lb, up 23.8%, pork at $3.59/lb, up 28.2% and chicken at $2.20/lb, up 11.1% over 2013.  Solid profitability for all end users of corn except cattle as $200 feeder cattle negate all benefit from cheaper corn and record fat prices.

 

Bottom Line:  Expect a bit of a short-covering bounce today with eyes on the crop condition reports later this afternoon.  Traders will be interested in how delayed wheat harvest is, as well as how good the corn and soybean crops are progressing relative to the last several years.  Great potential exists this year for record fall crops, although the key developmental weather lies in front of the market.  Funds are in sell mode right now on Ag commodities, even if crude is finding a bid.  Weather remains the largest fundamental driver at current.

 

Good Luck Today.

 

HPC 6-16 HRW Abandonment 6-14

 

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.

 

 

 

6/12/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.00090 at 80.7790; Euro down 0.00040 at 1.35240; S&P’s are up 0.25 at 1944.50; Dow futures are up 5.00 at 16,860.00; 10-yr futures are down 0.09%; The Nikkei closed down 0.64% at 14,973.53; The DAX is down 0.3% at 9,947.10; The IBEX-35 is up 0.17% at 11,093.40; The Russian MICEX is up 0.56% at 1,499.11; Gold is up $2.70 at $1263.90; Copper is up $0.35 at $304.40; Crude Oil is up $1.52 at $105.95; Heating Oil is up $0.0499 at $2.9542; Paris Milling Wheat is unchanged at €189.25/MT.

Crude oil is grabbing headlines this morning as it traded over $106/bbls for the first time since September as an insurgency in Iraq raised the risk of disruption to supplies after OPEC vowed to keep output unchanged.  Al-Qaida inspired groups, which have captured two key cities in Iraq earlier this week, vowed Thursday to march on to Baghdad.  One of the two cities, Mosul, lies in an area that is a major gateway for Iraqi oil.  Yesterday’s EIA report also showed a larger than expected drop in US stockpiles of crude, down 2.6 million barrels in the week ended June 6th.  Weekly unemployment claims out later this morning are expected to drop 2,000 to 310,000, while continuing claims are seen increasing 2,000 to 2.605 million.  Retail sales out today are expected to increase +0.6% and +0.4% ex-autos for the month of May.

Systems are moving across OK/TX/KS this morning, adding to moisture which has already fallen the last 48-hours.  Since Tuesday, nearly the entire state of KS has received 0.25-3.0” of rain.  The plains states will be active the next 3-days with various systems bringing moderate to heavy rainfall, with concentrated totals in E-TX/SE-NE/SW-MN.  The central corn belt will also see rain early next week, ensuring the entire corn belt continues to see adequate rainfall.  6-10 and 8-14 day maps also look accommodative with below normal temps for the entire Midwest as well as precip in the normal to above category during the extended time frame.  Based on offer prices of wheat and USDA projections yesterday, it would also seem as though the Black Sea region isn’t as dry as originally advertised.

 

Mostly better trade this morning following the post-WASDE bloodletting yesterday.  While the data itself could mostly be called a non-event, it’s hard to dismiss a nearly 3.0% move in wheat futures as a non-event.  Updates to corn and soybean balance sheets were about as expected, and will be covered below.  The real surprise was the increase in world wheat production and carryout thanks to unexpected jumps by various exporting countries.  The report hit home the fact that while KS/OK/TX HRW production is going to be down this year, the US is really the only place in the world with a crop production problem.  Without any fundamental data points for the bulls to really sink their teeth into, we revert to trading weather which at the current time period is bearish for grain prices.  The next big price driver will be the June 30th acreage and stocks report later this month.

The big changes in the world wheat balance sheet included Russian production up 1MMT to 53MMT, Kazakhstan was unchanged at 14.5MMT, Ukraine unchanged at 20.0MMT, India up 1.85MMT to 95.85MMT, China up 1MMT to 124MMT and EU-27 up 1.37MMT to 146.25MMT.  While not all of the before mentioned countries saw increases, the fact that some didn’t see expected decreases caught the market of guard.  To wit, Russian production up 1MMT, Kazakh production unchanged and the EU-27 up 1.37MMT were all headline grabbers.  In the USDA’s lockup briefing slide package, they had several slides detailing the favorable weather to date in the European Union, and frankly, it’s difficult to argue with the largest production in six-years.  Above normal rainfall coupled with above normal temps, but not searing heat, equal solid production.  Looking at Paris Milling Wheat and it’s price spread with US prices, it would appear MATIF has more downside room than upside and should compete heavily with Black Sea supplies in 14/15.  Global exporters and Chinese supplies are on the rise.  Not good for rallying wheat prices.

On the US side, the report was actually fairly favorable with larger than expected cuts in US wheat production.  All winter wheat production came in at 1.381bbu vs estimates of 1.394bbu.  HRW was pegged at 720.5mbu with KS at 243.6mbu vs 260.4mbu on the May WASDE.  Many thought the recent rains in KS and the southern plains would lead to a stabilization or even increase in production, but it would appear the rains came a bit too late.  Feed demand was reduced for next year with no arguments given the wheat/corn spread throughout the 14/15 curve.  Only other thing worth noting on wheat that hasn’t been discussed already it the drop in the July put/call ratio for Chicago Wheat.  At the close yesterday the ratio was at 116.6% vs 139.10% 2-weeks ago and 151.6% a month ago.  As prices have been dropping, the options pit has gotten less and less bearish, possibly signaling the early stages of a bottom.

Really not much to discuss on corn and soybeans either with no changes made to either the 13/14 or 14/15 corn balance sheet, and just a 5mbu increase in 13/14 soybean crush to drop the carryout by a like amount.  125mbu seems like the line in the sand for the USDA, and they didn’t seem in too big of a hurry to increase their already record soybean imports after April census data showed lower than expected imports.  If conditions do continue to hold, however, new crop soybeans at $12.25 definitely seem as though they have the most downside vulnerability.  With current projections, US carryout stands to more than double in 14/15 to 325mbu, and world stocks will increase 15MMT (550mbu).  Unless Chinese demand jumps even further next year, we will have the largest soybean supplies since 06/07 when prices traded under $7.00.  Review that $12.00 handle often.

Looking forward to the June 30th stocks report, a few observations are worth noting, especially for the bulls.  On the acreage report, corn acres over the last 10 years have increased from the May report to the June report nine times.  This is a mixed bag this year given acreage switches in the north, but probably additional acres in the corn belt.  Either way, real tendency to come in above the March figures.  Soybean acres have increased from March to June in 4 of the last 5 years, but have been down 6 of the last 10 years.  On the stocks report, corn stocks have come in above the average trade guess in 6 of the last 8 years, while soybean stocks have been above the average trade guess in 5 of the last 7 years.  The real notable figure is wheat stocks which have been above the consensus estimate in 7 of the last 8 years and 12 of the last 14 years.  Point of the aforementioned is despite the current downtrend, and mostly negative news flow, the tendency for the end of the month reports is to come in bearish vs the average trade guess.  Hoping for some sort of Waterloo moment on June 30th might not be the best marketing strategy, regardless of how far prices have fallen.

Weekly ethanol production out yesterday before the report was bullish with weekly production jumping to 944,000bbls/day vs 938,000bbls/day the week before and the 899,000bbls/day needed weekly to hit the USDA’s marketing year estimate.  Stocks continue to surge too, however, with supplies up another 172,000bbls to 18.422 million, the largest stocks levels since March of 2013.  This is due in large part to declining gasoline demand which has plunged over the last two weeks from over 9.25 million barrels to 8.65 million, down near the lowest levels in the last 5-years for this time frame.  The combination of lower gasoline demand, and declining DDGs prices could have a real negative effect on production margins and therefore production run rates in coming weeks.  This isn’t something corn demand needs to deal with right now.

Without going through the entire rundown, it suffices to say corn basis was again firmer on yesterday’s sell off with CIF NOLA barges pushing the river well above gross delivery equivalence.  Unfortunately, the stronger cash basis and mostly firmer spreads haven’t been enough to pick the futures board up on its own.  Still has to be monitored for clues the selloff is running its course.

Export sales out this morning with corn seen at 350-650TMT of old crop, 80-120TMT new.  Wheat at 100-450TMT, soybeans at -125/+100TMT old crop and 250-700TMT new crop.  Product sales are seen at 0-135TMT old crop meal and 0-20TMT old crop soy oil.

 

Bottom Line:  The June WASDE is now behind us, and the focus shifts back to almost exclusively on weather.  Conditions are favorable for developing crops both in the US and abroad outside of the southern plains.  As long as weather remains ideal, balance sheets for all of the major commodities will grow in 14/15.  We can’t count on a surge in demand at this stage of the marketing year to help clear supplies.  It will take adverse weather between now and August to alter the current price trajectory.

 

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.

6/11/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0310 at 80.7890; Euro is down 0.00150 at 1.35320; S&P’s are down 7.75 at 1942.75; Dow futures are down 57.00 at 16,885.00; 10-yr futures are down 0.04%; The Nikkei closed up 0.50% at 15,069.48; The DAX is down 0.78% at 9,950.98; The IBEX-35 is down 0.71% at 11,074.70; The Russian MICEX up 0.19% at 1,493.57; Gold is up $2.90 at $1263.00; Copper is down $0.45 at $304.85; Crude Oil is up $0.16 at $104.51; Heating Oil is up $0.0101 at $2.8942; Paris Milling Wheat is up €0.25 at €190.50/MT.

European shares are under modest pressure this morning after the World Bank cut its 2014 growth forecast to 2.8% from 3.2%, citing a bitter American winter and the political crisis in Ukraine.  Yet the upturn in economic data in the US, Japan and China as well as the additional monetary stimulus in Europe tempered further cuts.  The euro is trading down to four-month lows this morning in anticipation of further economic stimulus from the ECB.  A market research firm called Sentiment Trader pointed out in their evening market comment last night the S&P 500 has gone 37 straight sessions without a 1% move from the previous day’s close.  This is the second longest steak (2007) in the last 15-years, and highlights the sense of complacency in the equity market.  Volatility always follows a lack of volatility.

Rains moved across the Northern Plains last night and early this morning bringing 0.10-0.50” across much of W-SD and SW-ND with rains falling in E-ND/E-SD this morning.  A separate system is moving across the Great Lakes this morning bringing sizable totals. Weather services are talking about severe weather impacting portions of E-SD later this afternoon with a possible supercell thunderstorm impacting the James River Valley.  Additional rainfall is expected in the northern plains the next 3-days with heaviest amounts in N-MN (2.50”).  KS/OK/E-TX will also be receiving rains as harvest progresses there.  More rain in the forecast for the weekend and early next week for most of the central and WCB.  6-10 and 8-14 day maps keep above normal precip over the ECB and Great Lakes while a dividing line running from MT to LA keeps above normal east and below normal west during June 16-20th.  Temps to remain normal to below normal.  Still no sign of adverse weather in the extended maps which will keep the row crops developing normally.

 

Firmer grain markets and a bit easier soy complex to start our Wednesday with the June WASDE on tap later this morning.  The first table below is the average analyst estimates as compiled by Reuters for today’s ending stocks figures.  As one can see from the average trade estimates below, analysts are looking for a small cut in the corn and soybean stocks, and a slight build in the wheat stocks.  It appears as though most aren’t looking for many changes to production or demand in the 14/15 balance sheets.  Changes should be small for both crop years, with ethanol production possibly being bumped higher due to the solid production data the last several weeks.  We will get another ethanol update before the WASDE is out at 11:00am.  How the USDA reconciles the ever-tightening US soybean balance sheet will also be of focus.  Most looking for a small cut in US winter wheat production as well.  All-in-all, shouldn’t be too many surprises in today’s data with the much larger report coming on June 30th when acreage ideas are updated as well as June 1st stocks data.  An uptick in volatility right at report time should be met with a return to ranges post numbers provided nothing is too out of the ordinary.

Aside from the USDA numbers, there are a few other topics worth addressing.  First is the collapse in DDGs values the last 2-months, but especially since China decided not to renew any import licenses of US-DDGs due to the presence of the MIR-162 trait.  The second chart below shows Iowa Weekly DDGS prices vs Corn price as a ratio, while the last chart shows outright Iowa DDGs values.  As one can see, DDGs values have been dropping much faster than corn, falling from a peak of 1.50 back in late March/early April to 1.15 late last week.  Prices at the Gulf have fallen further this week, which will have consequences for soymeal demand.  With DDGs not being a storable product, prices are declining to the point of pushing out soymeal in some poultry and hog margins.  This could help accelerate the soybean rationing process that needs to take place anyway.  China is the largest destination of US-DDGs, and if they bring imports to a complete halt, we will have to find domestic homes for the product which will put heavy pressure on competing feed grains.

That provides a good segue into corn end user margins which remain robust for ¾’s of the domestic crowd.  Ethanol production margins this week were calculated at $1.26/gln vs $1.37 last week and $0.87/gln last year.  A $20.00/ton drop in DDGs prices provided the $0.11/gln contraction w/w.  Margins are still strong, but this trend needs to be monitored closely.  Poultry prices finally eased from record levels, but production margins are still near record territory at 91.49c/lb vs 95.96c last week and 85.25c last year.  Hog crush margins improved last week to $151.19/hd vs $146.26 the week before and $78.28/hd a year ago.  Cattle remain the incredibly weak link at $77.46/hd vs $96.97/hd last week and $209.91/hd a year ago.   Feeder prices climbing to $205.00/cwt are negating any and all benefit of falling corn prices and record fat prices.  Margins are sharply negative for any feed lot which isn’t vertically integrated with the packing and retail sides of the equation.  Soy crush margins in C-IL improved last week to $1.15/bu vs $0.96 last week and $0.79 a year ago.  All prices and figures are compiled by www.rjomrt.com

Some basis moves yesterday worth mentioning here.  CIF-SRW premiums remain under heavy pressure with expanding Delta harvest.  Spot barges were down 8-9c yesterday alone to +38N vs +45N a week ago. HRW premiums at the Gulf are showing no response to harvest with bids steady at +145N, unchanged on the week.  CIF corn premiums are largely unchanged on the week at +71N, but domestic premiums and PNW premiums continued their march higher yesterday.  PNW corn shuttles for June are now trading at +120N, up 10c from a week ago, with offers now around +125/130N.  Cedar Rapids, IA firmed posted bids with round lots said to be fetching +22/25N.  Ingredion in Chicago remains inverted to July by 4c with spot at +15N.  Corn movement is dead with farmers disinterested in the price and the crop not far enough along to feel confident in turning palms in.

The farmer clearly isn’t ready to sell corn, but the market is penciling in a growing crop as evidenced by spreads.  The CZ/CH spread hit -10.50c yesterday, the lowest trade since January 9th.  This represents about 70% of full carry, depending on the interest rate being used, so some commercial entities are taking a hard look at rolling a portion of their hedged corn length they plan on carrying to March here, and scaling out to -12.50c. The ‘canary in the coalmine’ has also been under heavy pressure with the CN5/CZ5 trading down to +10.25c yesterday, the lowest trade since February 18th.  Try and watch spreads for the market’s true perception of the crop as opposed to getting lost in the analyst chatter.  The market composition is pricing in the ideal weather.

Other tidbits included Reuters reporting China saying their winter wheat harvest has now reached 60% complete with 14 million hectares reaped.  Last year, China produced 120MMT of wheat, one fifth of the world’s total.  Most weather forecasters are now expecting Ukraine’s bumper crop to make up for any shortfall in portions of Russian and Kazakhstan, so a repeat of 2010’s searing drought looks unlikely as of June 11th. The spread between Paris Corn and US corn hit $65/MT during yesterday’s session, the largest premium since April 16th.  That value is above the 50/100/200-day moving averages.  London feed wheat is at new contract lows, and Paris wheat is slowly putting more premium over US prices with Paris now $36/MT above SRW, and even with MPLS.  KC is still commanding a $9/MT premium over Paris wheat.

 

 

Bottom Line:  Expect a choppy session ahead of the USDA data, and even after the data is out prices should remain in recent trends unless the USDA flips us a game changer.  There is old crop tightness in corn and soybeans, but the former is due to a lack of movement by the farmer, not a lack of actual supply.  That supply needs to move before Sept 1, so the clock is ticking.  Crop development weather remains ideal, and the US looks to be the only country with a wheat production shortfall.  Until the script changes, our markets will remain heavy.

 

Good Luck Today.

 

Reuters 6-11 Iowa DDGs 6-10

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS 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.