Outside Markets as of 6:50am: Dollar Index up 0.2580 at 95.6410; Euro down 0.00520 at 1.11280; Brazilian Real is off 2.13% to 2.9967; S&P’s are down 6.75 at 2098.00; Dow futures are down 49.00 at 18,138.00; 10-yr futures are up 0.10%; The Nikkei closed down 0.59% at 18,703.60; The DAX is up 0.02% at 11,282.87; The IBEX-35 is down 0.19% at 10,993.30; Gold is up $0.90 at $1205.30; Copper is up $0.35 at $266.00; Crude Oil is up $0.41 at $50.94; Heating Oil is down $0.0176 at $1.9219; Paris Milling Wheat is unchanged at €186.75/MT.
The Brazilian Real is trading especially weak this morning, nearing the 3:1 level against the US Dollar for the first time since August 2004. Fears that the political and economic situation in South America’s largest economy are growing worse seem to be driving the rout. Brazil’s chief prosecutor asked the Supreme Court to investigate 54 people, including politicians, for alleged involvement in a huge kickback scheme at state-run oil company Petrobas. On Monday, the trade ministry sad Brazil had a trade deficit of $2.8 billion in February the worst result for the month since 1980. The 12-month trade deficit is now -$3.8 billion compared with a $1.4 billion surplus during the same period ended February 2014. A weak currency will continue to make soybean prices in Brazil more attractive to growers there. Traders are looking for a weekly crude oil inventory build of +4.0 million bbls, adding to the massive string of increases since the 1st of the year. Crude inventories in the US are now 12.6% higher than the beginning of the year and 21.7% higher than September’s 1-yr low.
A mix of precip moving across the southern plains, southern Midwest and ECB this morning with light precip already being recorded. This system is expected to bring 0.50-2.50” to the area from E-TX to WV over the next 3-days. Following this round of precip, things are expected to quiet down quite a bit in the extended time frame with below normal precip for the entire country. The 8-14 sees more normal precip patterns, but above normal temps will be the feature during the 6-15 day. This will begin to melt snow cover and possibly firm up fields for fieldwork or seeding. Corn planting has already begun in TX with 4% planted being reported as of Monday.
Softer overnight markets for all of the Ag markets as futures grapple with a rapidly declining Brazilian currency, surprise deliveries against the WH15, solid precip returns expected across the south and eastern US wheat belts and indications spring could be early this year as opposed to late like the last two. Wheat and soybeans have been the focus of the selling pressure, but both have yet to violate serious technical support which would open up a new wave of selling. The corn market is still flagging into declining volume which could be setting the stage for a breakout in coming sessions. Be watchful for any minor term momentum failures. Weekly ethanol production on tap at 9:30am which most think will lead to another decline as margins remain relatively low compared with inputs and outputs. The US farmer remains a subdued seller due to both price and the calendar.
The big overnight news were the 250 deliveries posted against the WH15 by Nidera which most think are going to be US 2 SRW 3 PPM vomi, or feed wheat in effect. It is no secret the last two years have witnessed poorer than average soft red wheat quality, and the CME deliverable stocks report has confirmed that week after week. What we haven’t seen, however, is any major commercial deliver this poorer quality wheat at a discount of up to 20c to US 1 SRW certificates. This would lead one to believe a couple things: 1) calendar spreads could see pressure both up front and deferred as this wheat just gets rolled and rolled until it can be adequately blended off. The WH/WK is off 3.0c overnight and the WK/WN is off 1.0c. 2) KC wheat could begin to exert more premium over Chicago given its lack of quality concerns and the potential for customers to turn to KW instead of W via delivery supplies. 3) It could set the stage for additional off-grade wheat supplies to be delivered at a discount if the cash market isn’t willing to pay for anything but US 1 SRW 1.25ppm vomi or less which would meet GASC specs. There is no shortage of wheat in the US, just a shortage of quality wheat. There were 1,065 corn re-deliveries also.
The soybean market continues to react to the weakening trucker strike and a weakening Brazilian currency. Only a handful of roads remained blocked in Brazil as of Tuesday evening, according to Reuters. There were seven protests over rising freight costs affecting federal highways, down from 18 on Monday and down from 100 a week ago. With the Brazilian Real continuing to plummet, soybeans priced in Brazilian Real are actually trading at around 29.90 reals/bushel, the highest level since August while CBOT soy prices remain in the lower half of their Oct-Feb range. CIF NOLA soybean premiums are reflecting the same with a softer tone, and in some cases no bid for spot barges. Spreads haven’t suggested anything different with the SH/SK and SK/SN trading down to the lowest levels since 2/17. The global soy pipeline appears adequately stocked for the time being.
While still on the topic of South America, Brazil did release updated planting and harvesting data yesterday with Brazilian soybean harvest advancing to 28% from 17% last week and compares to 41% last year and 32% average. 1st crop corn harvest was estimated at 26% vs. 21% last week and 41% in 2014, while 2nd crop corn planting was pegged at 58% vs. 40% last week and 56% last year. Informa economics released updated South American soybean production estimates yesterday during the session and pegged combined Braz/Argy/Para production at 159MMT vs. 148.321MMT in 2013 thanks to Argentine production being raised all the way to 58MMT, a new record. Next year they see the three country production pushing to 163.35MMT thanks to Brazilian production of 97.5MMT, a new record. World corn production looks set to decline noticeably in 2015, something traders will need to monitor.
Draws were reported on the deliverable stocks reports for both SRW and HRW this past week. Total wheat stocks of SRW fell to 56.2mbu from 57.464mbu last week and 45.149mbu last year. Deliverable grade supplies of SRW were reported at 36.951mbu vs. 37.434mbu last week and 42.017mbu last year. HRW supplies fell to 41.639mbu from 42.313mbu last week and 50.993mbu last year. HRS supplies in Duluth/Superior and MPLS were essentially unchanged on the week.
Bottom Line: The entire trucker strike premium has been erased from both futures and basis, indicating supplies are plentiful and disruptions minimal. Wheat is feeling a two-pronged attack from heavy old crop deliveries which contain poor quality wheat, and moisture moving across the wheat belts as we get set to break dormancy. Corn demand appears to be strong enough to support current levels, and new crop balance sheets are already more snug than most would prefer. Hard to see positive trade today in my opinion.
Good Luck Today.
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