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.
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