10/7/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index up 0.1180 at 86.0450; Euro down 0.00320 at 1.26010; Brazilian Real down 1.89% at 2.4482; S&P’s are down 7.25 at 1948.75; Dow futures are down 61.00 at 16,842.00; 10-yr futures are up 0.10%; The Nikkei closed down 0.67% at 15,783.83; The DAX is down 0.82% at 9,133.80; The IBEX-35 is down 1.53% at 10,483.30; Gold is down $2.60 at $1204.70; Copper is down $0.55 at $303.00; Crude Oil is down $0.34 at $90.00; Heating Oil is down $0.0098 at $2.6115; Paris Milling Wheat is down €1.25/MT at €159.00/MT.

European equity markets are getting hit pretty hard this morning with most major indices down close to 1.0% as German industrial production plunged 4% in August, more than the 1.5% reduction most economists had predicted and the biggest decline since 2009.  Fears are escalating Germany might be inching towards another recession after a string of poor economic reports.  In Russia, the Ruble is attempting to stabilize as the nation’s central bank stepped in and spent $980 million on October 3rd to stem the Ruble’s decline.  In the US, August consumer credit is expected to show another big increase of $20.0 billion, well above the 5-year monthly average increase of $9.3 billion, but off from July’s +26.006 billion.  The majority of the credit increase has been due to vehicle and student loans with installment loans up 8.5%.

Scattered showers across the ECB this morning, but mainly dry across the central and west.  Another windy day across the central and northern corn belt which should keep combines moving on soybeans.  Moisture the next 3-days will be confined to KS/MO/IL/IN/KY with heaviest totals falling in MO to the tune of 2.0”.  Moisture will continue falling there and south the rest of the week with Hurricane Simon pushing moisture inland from the Pacific side of Mexico and California.  7-day forecasted rainfall is below with heavy rains expected in OK/AR/MO, but even surrounding areas to receive above normal rainfall which should impede harvest efforts.  NOAA’s extended maps have temps gradually warming to above normal for the majority of the Midwest, while precip looks to push above normal for the entire region during the 6-10.  The 8-14 has similar trends.

 

Modest setback in prices following yesterday’s sharp rally in the soy complex on wet forecasts, solid CIF premiums in the face of declining barge freight, the big fund short paring exposure and technical buying after several long-term Fibonacci retracement levels held on the recent selloff.  Hard to read too much into price action from here forward going into the October WASDE as trade is likely to become especially choppy with traders paring exposure and moving to the sidelines.  Frost/freeze over the weekend in Northern growing regions could have hurt more corn and soybean acres after yesterday’s crop progress reports showed a bit slower harvest activity than expected.  In other news, a group of US farmers became the latest group to sue Syngenta over sales of genetically modified corn seed, not approved by China, disrupted export activity.  Most of the farmers didn’t actually plant AG Vipterra.

Crop conditions held steady on corn last week with 74% of the crop rated G/E and 7% rated P/VP.  Harvest was estimated at 17%, a bit slower than the 20% expected, and well behind the 5-yr average of 32%.  Last year, the government was shut down for 3-weeks during October due to the budget impasse, making direct comparisons difficult.  Northern states obviously remain the largest behind with IA at 5% vs. 26% average, SD at 5% vs. 23%, ND at 1% vs. 14%, MN at 5% vs. 20% average, and WI at 3% vs. 15%.  In my opinion, we should likely see harvest remain well behind average the entire harvest as farmers opt to let the corn dry in the field as much as possible before harvesting to avoid drying the corn at home or at the elevator.  Any expense which can be cut from this crop will be.  77% of the crop was mature vs. 81% average with only 57% of ND and 63% of MN mature vs. 69% and 76% average, respectively.

Soybean conditions improved one point to 73% G/E from 72% last week.  Soybean harvest was estimated at 20% vs. 26% last year and 35% average.  Biggest laggards included IA at just 9% harvested vs. 42% average, IL at 18% vs. 32% average, IN at 18% vs. 30% average, WI at 7% vs. 27% average, SD at 25% vs. 45% average and NE at 16% vs. 41% average.  Mid-south and Dixie states are at or above average.  Dropping leaves estimated at 83% vs. 84% average.  Winter wheat planting was seen at 56% complete vs. 53% average with KS at 51% vs. 54% average.  Emergence was pegged at 28% nationally vs. 24% average.  Spring wheat harvest was estimated at 96% complete vs. 99% average, although talking with one elevator manager in SW-ND would suggest a fair amount of HRS remains left to be harvested with quality an absolute disaster.

In spread activity, the KWZ/H finally pushed to an inverse last night, trading at +0.50c at the high, which is the highest since May 6th, 2014 when December KC wheat was trading at $8.55 a bushel.  KCBT protein scales firmed another 2-5c yesterday for 11.60-13.80% protein levels with 12.0% pro now +150/160Z and 13.0% pro at +152/162Z.  The KWK/KWN continues to weaken, however, trading down to +3.25c, the lowest since February.  Minneapolis basis also weakened yesterday for 13’s and 15’s, off 20-50c with 15.0% protein wheat still commanding +565/600Z.  Corn and soybean premiums were a mixed bag Monday as PNW premiums saw weaker soybean basis, but unchanged corn bids.  The Gulf was firmer for soybean bids, now commanding +110/120/120X for OND.  Still hard to believe the 900-925% barge freight which is paying elevators along the river 27-29c/bu to store soybeans until FH-November.  Interestingly, soybeans in Zone 3 have nudged up to gross DVE for LH-Nov and January with barge freight out there 650-700%.  Not a lot of reason to be bearish soybean spreads with basis trading at delivery equivalence.  Incentive to store corn until December along the river is now 40c/bu.

A quick note on soybean technicals, several long-term Fibonacci progressions have come into play the last several sessions.  For starters, prices held the 100% progression of the $17.89-11.62 selloff from the $15.36 corrective high at $9.10.  In addition, the 100% progression of the $16.36-7.76 selloff from 2008 from the $17.89 all-time high comes across at $9.28/bu.  In looking at possible retracement levels, the 38.2% retracement of the 11.16-9.05 selloff hits at $9.85 which is also a fairly heavy level of congestions.  Would seem this is a reasonable upside objective.

 

Bottom Line:  A little set back in row crop prices this morning, but still within recent ranges.  Outside markets appear benign today, so we’ll resort to trading weather and yield reports in the ramp up to Friday.  Storage is becoming tighter by the day, and will command a premium this fall.  Old crop seems to be coming out of the woodwork, and is being reflected in premiums across the WCB.  It all really comes down to what the yield is Friday and if we see acreage changes.  Demand is doing enough to hold its own right now.

 

Good Luck Today.

 

HPC 10-7

 

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.

10/6/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index down 0.3240 at 86.3700; Euro up 0.41% at 1.25660; Aussie Dollar up 0.67% at 0.86860; S&P’s are up 7.25 at 1967.50; Dow futures are up 64.00 at 16,985.00; 10-yr futures are up 0.11%; The Nikkei closed up 1.16% at 15,890.95; The DAX is up 0.98% at 9,285.84; The IBEX-35 is up 1.20% at 10,694.50; Gold is up $2.20 at $1195.10; Copper is up $2.95 at $302.80; Crude Oil is up $0.53 at $90.27; Heating Oil is up $0.0092 at $2.6255; Paris Milling Wheat is up €1.75 at €160.25/MT.

Equity markets around the globe are still enjoying a pop from Friday’s US employment report which came in better than expected with 248,000 jobs created during September, and the unemployment rate dropping to 5.9%.  Of concern was average hourly wages falling a penny during the month, highlighting the lack of wage inflation which is still a problem.  German factory orders dropped 5.7% in August, worse than the 2.5% forecast.  Q3 earnings will begin this week with Alcoa and Monsanto reporting earnings on Wednesday.  As of Friday, the Bloomberg Commodity Index, formerly the DJ-UBS, was down 6.14% YTD and over 7.0% in the last year.  When one stops to think about commodities as an asset class, the realization that for the first time since the 1980’s, the US has both comfortable grain and energy supplies at the same time.  The bull commodity run wasn’t predicated on surpluses.

Showers in the southern Midwest and Dixieland areas this morning, following decent rainfall over the weekend.  Heaviest shower activity occurred in IL/MOIN/MI where widespread totals of 1.00” were witnessed.  Localized totals in IN/MI pushed above 2.5-3.00”.  Rainfall the next week will mainly be confined to the ECB once again, keeping harvest activity curtailed to between rain showers. Over the next 7-days, the southern Midwest is going to see heavy rains, especially in AR/MO/S-IL/S-IN/KY/TN with cumulative totals around 4.0” in AR/MO.  Frost/freeze occurrences were plenty over the weekend for the Dakotas and N-MN which should have brought the growing season to a close for most areas.  Temps the next 6-15 days will cool to below normal for the majority of the Midwest with precip remaining above normal for the ECB.  Below are the latest 6-10 and 8-14 day precip maps.  Note the east.

 

Solid bounce out of the gate last night for Ag markets, and continuing this morning led by soybeans which find themselves up 1.5-1.7%.  The combination of wetter forecast maps the next 7-15 days which could impact harvest efforts, a record fund short, solid board crush through next summer and record export commitments are all supporting soybeans on the move.  In addition, traders seem to be taking solace in soybeans closing positive on the week last week for the first time since the first week of August, which is probably causing some profit-taking on well-established short positions.  The real focus will be if Ags can maintain their strength into the October WASDE this coming Friday which will give us updated yield, acreage and demand figures to chew on.  Trading and closing above $3.30 and $9.41 for December corn and November soybeans, respectively, would help out their technical condition.

Friday saw the latest Commitments of Traders data released which kept recent trends in place on soybeans with the Gross Commercial Long pushing to a new all-time record going back to 1/2/2007 of 389,914 contracts.  Little selling by the commercial gross short was noted, but funds finally pared their record net short by 7,419 contracts, the first week of net buying in 6-weeks.  Also of note, the Commercial net short in KC wheat now totals -20,998 contracts, the smallest net short since 7/16/2013.  The commercial net short rarely stays smaller than 20,000 contracts over the last 7-years, and the lack of a position “down here” is certainly noteworthy.  The large spec trader in KC wheat is now short -13,880 contracts, the 9th largest short on record.  In Chicago Wheat funds are short -86,185 contracts which accounts for 15.6% of total open interest.  No big movers in corn with the large spec buying around 6,600 contracts to keep his net long at 19,257 contracts.  Bullish sentiment remains above 50% on corn, which is a slight concern for a market trying to bottom.  In total, the large spec trader is  holding 634,571 contracts which is 32.86% of total open interest, still near the biggest positions on record.  They aren’t heavily net short or net long, but they are incredibly exposed to the corn market which could exaggerate any short-cover rally or decision to push price lower.

The Aggregate Large Spec position across C,S,W,KW,BO,LH,LC,FC,CT,SB,KC,CC saw small net buying last week of 35,756 contracts to push their net position back positive after dipping negative briefly.  Funds still have a decidedly bearish view of the commodity sector, and with the US Dollar Index at 4-yr highs, concerns about rising interest rates in 2015, lackluster Chinese economic growth and surpluses of both grain and energy in the US, they have good reason to be pessimistic towards the sector.  When we rewind a bit and look at the entire bull run from 2008-2011, it is very difficult to quantify how much effect Quantitative Easing, a weak Dollar and rotation into commodities had vs. fundamental factors such as balance sheets and weather.  Monetary policy has been incredibly loose the last 6-7 years, and while it isn’t going to snap back in one year, we are going to be getting slowly tighter which will Dollar positive and commodity negative.  These larger macro events matter, even if we have difficulty measuring their effects.

Worth noting the contract lows corn spreads hit or tied on Friday with the CH/CK hitting -9.00c, a new contract low, the CK/CN tying its contract low of -8.00c and the CN/CU tying its contract low of -8.00c.  CZ/CN and CZ/CU both hit fresh contract lows of -29.50c and -37.50c, respectively.  The forward curve of the corn market getting steeper, and incentivizing the storage of corn, is not bullish.  The market is clearly reacting and attempting to price in a larger crop, for which we have more supply than demand at current levels.  Fortunately, with the lower price structure, farmers are going to be paid to store, however, carries aren’t earned unless they’re sold. One other spread worth noting is the KWZ/KWH which hit even money last night, and has been on a one-way street since mid-August when it hit -11.50c.  The high cost of freight is negatively impacting the KC wheat market and the market is forcing its hand toward an inverse to try and get grain to move to export channels and domestic millers.

The forward curve of the soybean board crush is certainly promising for the balance sheet with spot crush at $1.20/bu, December at $1.03, January at 94.5c, March at 83.5c and May at 76.5c.  In looking at a continuous chart of the board crush going back to 1996, one quickly realizes current margins are near the best levels ever when taking out the delivery aberrations due to expiring contracts.  In fact, monthly margins have only held over $1.00 two other times: briefly in June of 2008 and briefly in 2003.  This should assuage fears over domestic crush demand meeting the challenge of surging soybean supplies.  Coupled with soybean export commitments running 9% ahead of a year ago, and soymeal export commitments running 198% ahead of a year ago, demand does appear to be firing on all cylinders, but carryout is still set to balloon regardless.

While old news this morning, worth noting Informa Economics’ latest yield estimates in which they pegged the average corn yield at 176.4bpa vs. the USDA’s latest 171.7bpa in September.  Total production was a wash with the USDA at 14.395bbu as Informa is assuming an FSA-related acreage cut of 2.3 million.  Should an acreage cut of that magnitude occur, it is very possible we could put in our seasonal lows.  On soybeans, Informa is using a 48.5bpa yield vs. the USDA’s latest 46.6bpa with total production at 4.017bbu vs. the USDA at 3.913bbu.  Informa sees an acreage reduction of 1.178 million on soybeans.  Also worth pointing out, Informa’s track record the last 10-years shows them coming in above the USDA 8 times and below twice, while they were above the USDA 6 times, tied twice and were below twice on soybeans.

 

Bottom Line: A long-awaited bounce looks like it is finally here, although whether it has any legs ahead of the October WASDE on Friday remains uncertain.  Farmers getting into the fields are finding themselves longer than originally anticipated, so marketed levels need to be reviewed early and often.  Our markets have endured a ton of bearish news the last 6-weeks, and with the forecast turning wetter, it looks like we could see some stabilization pending Friday.

 

Good Luck Today.

 

610prcp.new 814prcp.new

 

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.

 

 

10/2/2014 Morning Comments

Good Morning,

 

Outside Markets as of 7:00am:  Dollar Index down 0.1820 at 85.7880; Euro up 0.00280 at 1.26410; Aussie Dollar up 0.58%; S&P’s are up 2.00 at 1942.75; Dow futures are up 4.00 at 16,743.00; 10-yr futures are down 0.01%; The Nikkei closed down 2.61% at 15,661.99; The DAX is up 0.15% at 9,395.75; Crude Oil is down $1.44 at $89.29; Heating Oil is down $0.0358 at $2.6198; Paris Milling Wheat is up €1.75 at €156.50/MT.

The first case of Ebola was confirmed in the United States yesterday by the CDC, raising caution as people reconsider air travel.  A fat finger order in Japan caused a sharp selloff in the Nikkei and other Asian markets after a trader mis-entered a ¥68 trillion order.  In the US today we will see unemployment claims which are expected to rise 5,000 to 298,000.  Also out today will be August factory orders which saw a 10.5% jump in July, the biggest one-month jump since 1992.  Crude Oil also slipped below $90 for the first time in 17-months, keeping pressure on commodity indices.

Rain moving across the Midwest this morning brining moisture to NE/SE-SD/IA/MO/IL/IN which should stall harvest efforts there through the end of the week.  Precip the next 5-7 days will be heaviest east of the Mississippi River where MO/IL/IN/MI all see the chance for rains north of 2.00”.  This will keep things slow, especially as temperatures are forecast to cool notably over the next 10-15 days.  The entire Midwest is slated for below normal temperatures by October 10th.  Much of the Northern Plains will see another round of frost/freeze Friday morning with temps expected to slip down into the 30’s in South Dakota and colder North.

 

Weaker row crop markets and firmer wheat markets this morning as we head into export sales a bit later in the morning.  The rate of decline should slow the rest of the week and beginning next week as harvest efforts stall where progress has been heaviest.  The stoppage in combines rolling will probably be a welcome respite for commercial elevators who are trying to weigh storing grain vs. using 1000%+ barge freight and $6,000 rail cars to move the incoming new crop.  The tone of early yield reports remains strong, especially on corn, although soybean reports have been better east of the Mississippi than west.  Demand components on corn will take on greater focus as corn harvest reaches and passes 50% complete.  Ethanol production data yesterday was a bit concerning, and basis levels have been firming to suggest a big surge in export activity either.

Ethanol production yesterday declined to 881,000bbls/day from 889,000bbls/day last week, the second straight week of decline and the second straight week below the needed level of 902,000bbls/day to hit the USDA’s marketing year projection.  Stocks remain abundant, however, making the production decline all the more serious as stocks aren’t being drawn down, suggesting declining usage.  Stocks rose 236,000bbls to 18.828 million barrels, right near the highest levels since March 2013.  Driving season is over, and gasoline demand continues to run at the lower end of the 5-year range.  Ethanol production margins have slipped notably in the last couple of weeks, thanks in large part to declining energy markets which have pushed spot ethanol prices down to $1.54/gln, the lowest since on an active continuation basis since summer-2010.  A fresh supply of cheap, new crop corn should help margins again, but the corn market is going to need to see a jump in ethanol production in coming weeks to not only justify the USDA’s current ethanol demand projection, but keep prices from sliding lower to the level where price does encourage consumption.

Wheat basis was firmer at both cash exchanges yesterday with the Minneapolis spot floor seeing 14.0% protein up 40-50c from Tuesday levels, 14.5% up 60-55c and 15.0% protein up 75c on the bid side.  Indications put 14.0% at +240/250Z, 14.5% at +265/280Z and 15.0% protein at +615/620Z.  Volume remains decent at 199 cars including 4 trains, but the improvement in basis does seem to suggest the premiums are here to stay now that HRS harvest is essentially complete.  Not to be left out, HRW basis was also firmer for all protein classes by 8-15c with 12.0% pro now bid +152/162Z vs. +118/128Z a week ago while 13.0% protein is bid +152/162Z vs. +112/122Z a week ago.  KCBT is essentially flat from 11.60%-13.80% with 14.0% commanding a +165/175Z premium.  Neither of the aforementioned is the highest priced milling grain in the US right now, however, as cash durum prices continue to trade into the stratosphere with quality grain trading as high as $20-21/bu.  The durum market is a thin, flat price market the way it is, but when quality becomes as poor as this year’s crop was, premiums get hot in a big hurry.  Farmers with any sort of quality will be in the driver’s seat this year.

Weekly export sales came in at 741,000MT for wheat, topping expectations of 250-600,000MT.  Corn sales were mediocre at 638,000MT for 14/15 and 47,900MT for 15/16 vs. estimates for 550-1,000TMT.  Soybean sales were 869,100MT for 14/15 and 21,500MT for 15/16 vs. estimates for 600-1,100TMT, so in line.  Soymeal sales were a net cancellation of -26,800MT for 13/14 in the last week of the marketing year and 259,300MT for 14/15 which were toward the upper end of estimates.  Soy oil sales were a net cancellation of -3,400MT for 13/14 and 27,200MT for 15/15, both in line with estimates.  HRW sales led the wheat with 13.9mbu followed by HRS at 5.5mbu.  The jump in wheat sales is encouraging given we only need to sell 12.1mbu to hit the USDA’s sales projection vs. the 27.2mbu sold today.  Hopefully lower prices are curing low prices at least in wheat.  Corn sales are a bit concerning, however at 25.0mbu vs. the 25.6mbu needed to hit the USDA’s projection.  While the sales are close enough to the level needed, this time of year when supplies are abundant are when sales should be monstrous to make up for the slow sales in late summer.  PNW and Gulf bids have not indicated a pickup in export activity on corn, and the export sales report is confirming that.  Our domestic freight situation is certainly not helping matters, but corn has to see a pickup in demand if stabilization is to occur before the $3 area.

 

Bottom Line:  Wheat is rallying on the better than expected sales activity, although row crops seem to lack any true conviction today.  Harvest will slow the next 5-days, and it has yet to really get going in the West.  Continue to monitor yield reports for any change in tone which might offer some support to our markets.  Otherwise we are really just ramping up for the October 10th WASDE report next Friday which will be a big one in terms of fundamental input and volatility.

 

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.

 

 

 

 

 

 

 

10/1/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index up 0.1780 at 86.1150; Euro down 0.00390 at 1.25960; The Aussie Dollar down 0.55%; S&P’s are down 1.50 at 1964.00; Dow futures are down 6.00 at 16,958.00; 10-yr futures are up 0.15%; The Nikkei closed down 0.56% at 16,082.25; The DAX is up 0.14% at 9,487.19; Gold is down $2.50 at $1209.10; Copper is up $1.40 at $320.15; Crude Oil is up $0.49 at $91.65; Heating Oil is up $0.0101 at $2.6606; Paris Milling Wheat is unchanged at €152.75/MT.

The US Dollar Index continues to head down the one-way street higher, pushing to fresh 4-year highs of 86.1470.  To end last week, the Dollar Index had risen 11-straight weeks, the longest winning streak in its history going back to 1973.  According to www.sentimentrader.com, public opinion of the Dollar has also risen to 87%, the highest on record going back 15-years.  In addition, the strength of the Dollar is having an inverse effect on several other currencies including the Yen which saw Dollar/Yen push above the 110.00 level last night for the first time since August of 2008.  The Aussie Dollar also continues to hit fresh lows, dropping to 0.86170 this morning, the lowest trade since July 19th, 2010.  Investment money will continue fleeing commodities denominated in US Dollars as long as the buck keeps rising.  This macro influence to Ag markets cannot be underscored enough.

Sizable system moving across IA this morning bringing rain to most of the state as well as S-MN and scattered storms across NE.  Rainfall the last 24-48 hours has witnessed some heavy totals in NE/IA/W-SD, impacting early harvest efforts.  The next 3-days will see the current system push East, bringing heavy rainfall to MO/IL as well as separate events in WI/MI.  Totals in MO could push as high as 4.00” in spots.  Following the weekend rainfall, the Midwest should dry out the next 10-days, especially in the WCB where harvest should accelerate.  Temps slowly cool late in the 8-14 day period, with below normal temps for Northern Plains and Great Lakes region.  Precip becomes more active late in the period as well.  It looks as though our harvest weather is shaping up into pockets of favorable weather which will have to be taken advantage of.

 

Ag commodities are beginning Q4 in the same way they ended Q3: weaker.  A mostly negative quarterly stocks report yesterday begot more selling in anticipation of a decent harvest weekend, and the expectation yields are going to climb higher on the October WASDE.  Also worth pointing out, the Bloomberg Commodities Index fell 1.5% yesterday, the largest 1-day drop since June 2013, pushing the index down to the lowest level since 2009.  The Q3-decline for commodities was the worth since Q4-2008 when the economic crisis was really hitting stride.  This time, however, it would appear the largest user of commodities, China, is the one having the economic difficulties.  Our Ag markets are being hit with rising supply, weak harvest seasonals, a surging US Dollar and near-record equity markets in the US.  The combination is proving too much to prevent lower prices.

Beginning first with corn, stocks in all positions (SIAP) as of Sept 1 came in at 1.236bbu vs. the average trade estimate of 1.185bbu and vs. 821mbu last year.  The modest rise in stocks will up carryout on the October WASDE by 55mbu, pushing 14/15 supply up even further. The stocks number implied the 4th quarter feed/residual demand at 388mbu, which is up sharply from last year’s 247mbu, but still the third lowest of the last 25 years.  Today’s numbers did nothing to take the focus off the massive crop still in the field, and should force the USDA to project 14/15 ending stocks on the October WASDE north of 2.1bbu.    Analysts have already begun raising their 14/15 national corn yield with some pegging the crop as high as 177bpa.  Given the magnitude of the August to September change in yield, the Sept-Oct change should be less dramatic.  In addition, WASDE will update corn planted/harvested acreage which some prominent research firms think will decline by 2.0 million acres.  Should yield remain unchanged, a 2.0 million acre drop would result in 343 million bushels chopped off supply.  Demand estimates remain questionable, however, leaving plenty of fodder for fundamental discussions.

On soybeans, carryout levels for 13/14 dropped to 92mbu, the lowest since the early seventies, and the stocks/use to a record low of 2.6%.  This will make cash and spread traders rethink what “pipeline minimums” mean, and could shape supply and demand ideas for the 14/15 marketing year.  The national average yield for 13/14 was revised higher to 44.0bpa, tying the record setting year of 2009.  However, analysts have raised their soybean yield estimates for 2014/15, especially in light of today’s discovery, keeping 14/15 carryout levels north of 475mbu.  As with corn, one mid-south research firm is forecasting a drop of 1 million planted/harvested acres.  An acre change such as this would cut 41mbu off supply, although could be made up with just a 0.5bpa increase in the national yield.  While yield ideas are on the rise, some estimates calling for a 50bpa national average yield based on early harvest reports from Illinois seem a bit out of touch.   Crush is forecast at 1.770bbu vs. 1.730bbu last year, but is still down from 06-08’s 1.800bbu+ number.  Exports for 14/15 are forecast at a record 1.700bbu vs. last year’s 1.655bbu, but will face stiff competition from Brazil and Argentina.

Wasn’t much in the report in terms of wheat stocks with SIAP as of Sept 1 coming in at 1.914bbu, up from the average trade estimate of 1.880bbu and above last year’s 1.870bbu.  All-winter wheat production was reduced to 1.378bbu from 1.397bbu last month thanks to reductions in SRW and SWW, offsetting a 10mbu increase in HRW.  All-wheat production also rose thanks to a 29mbu increase in “other spring” wheat production which pushed to 601mbu thanks to the large crop in North Dakota.  Both North Dakota and South Dakota set state-wide yield records of 47.5 and 55bpa, respectively.  It is worth noting the USDA did say due to the latency of harvest, spring wheat farmers will be resurveyed to get a more complete picture of HRS production/stocks

Switching gears to freight and basis, worth noting the barge freight increase in the last couple weeks as rail isn’t the only form of transportation hitting supernova levels.  According to updated CIF soybean bids of +120/115/115/120X, there is a nearly 45c margin to carry soybeans from FH-October until FH-Nov.  Similarly, using CIF corn bids of +84/90/90/87Z for SOND, there is a 60c incentive to carry corn from spot until December due to the inverted barge freight market.  This obviously isn’t sustainable given the export sales on the books for both corn and soybeans, but it is outright alarming freight is already hitting these sorts of levels and harvest is barely over 10% for both corn and soybeans.  How this resolves itself is anyone’s guess, but storage will come at a premium, and harvest time basis is likely to continue getting weaker.  Make sure to reflect true cash and basis in marketing plans.

StatsCan will be out Friday with updated production forecasts, with the average analyst estimate expecting a 300,000MT rise in wheat production to 28MMT and a 700,000MT rise in Canola production to 14.6MMT. Both numbers are down from 2013’s massive harvests, but the rising expectations on the crop highlight the resiliency of a crop faced with late planting, wet weather and possibly late harvest. The world balance sheets don’t need rising production from any other source, but it looks like we will get it Friday.

Minneapolis HRS basis was mixed yesterday following a downdraft Monday as volume remains heavy on the spot floor.  14.0% has eased to +200/240Z and 14.5% to +208/225Z vs. +210/230Z and +210/290Z a week ago, respectively.  15.0% is bid +525/600Z, off from last week’s +600/625Z.  Deliverable stocks of wheat in Duluth have risen sharply the last couple of weeks, jumping 2.4mbu in the latest week to 18.490mbu, in-line with a year ago of 18.850mbu.  MWZ/MWH around -15.00c is basically treading water, after plunging to -17.50c a week ago.

Lastly, the Farmland Index from Creighton University now shows its lowest reading since March of 2009.  Couple that with cash bids being below county loan rate in North Dakota and one gets a sense of where things have been and where they’re headed.

 

Bottom Line:  There is simply too much bearish news being thrown at this market between macro-influences, big yields, negative money flow and weak chart action.  We usually set our fall lows in the month with the biggest USDA carryout projections.  Some thought that could have occurred on the September WASDE, but yield ideas keep getting larger suggesting October could be the month.  Maximize storage and carrying charges to avoid the high freight costs and maximize the cash bid.

 

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.

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index unchanged at 85.6400; Euro up 0.00090 at 1.26980; Aussie Dollar off 0.31%; S&P’s are down 11.75 at 1964.25; Dow futures are down 99.00 at 16,931.00; 10-yr futures are up 0.18%; The Nikkei closed up 0.50% at 16,310.64; The DAX is down 0.37% at 9,455.61; The IBEX-35 is down 0.93% at 10,750.40; Gold is up $5.40 at $1220.80; Copper is down $0.65 at $302.90; Crude Oil is down $0.44 at $93.11; Heating Oil is down $0.40 at $2.6916; Paris Milling Wheat is up €0.75 at €152.75/MT.

Global equity markets are on the defensive to begin the week as concerns over pro-democracy protests in Hong Kong as well as a 0.6% drop in industrial company profits in China during August, a sign economic growth may be slowing more than estimated.  Thousands of people took to the streets in Hong Kong to protest China’s decision to limit political reforms.  In addition, the US Dollar Index broke out to fresh 4-yr highs, trading at the highest levels since June 2010.  The Aussie Dollar is sitting on January low support, a break of which would drive the currency to the lowest level since July 2010.  The Canadian Dollar is in essentially the same situation, boding poorly for commodities.  The Aussie Dollar more than the Loonie is often seen as a proxy for economic strength and commodity demand out of China.  The US is on an island of its own with Q2-GDP being revised up to +4.6% from 4.2% previously.

Scattered storms across the WCB and Great Lakes this morning bringing modest precip to those areas. The Midwest saw a fairly open harvest weekend with precip bring confined to N-MN/N-ND and MT.  The next 3-days will see shower activity increase over the WCB and central corn belt in states like IA/E-KS/MO.  The rain will be welcome for recently planted winter wheat, but may stall harvest efforts further which are already a bit behind averages.  The system will work east by late this week to impact harvest efforts there.  Extended maps from NOAA show slowly warming temps in the West during the 6-10, but cooling off by the 8-14 for the entire Midwest.  Temps should run a bit below average Oct 6-12.  Precip does look to stay normal to a bit below average, however, which should mean harvest makes big strides into October.

 

Mixed to firmer start to the week in grains while soybeans find themselves lower for what could be the 8th week lower if Friday’s prices close below $9.0725.  Traders are ramping up for tomorrow’s Sept 30th Quarterly Stocks report which should provide clarity on last year’s soybean crop which has been suspected of being understated since March.  Changes to last year’s yield will hold implication for this year’s yield, and could shape market opinion going into the October WASDE.  In addition, the steady flow of “better than expected” yield reports continue to filter in with a mess of 200-270bpa corn yield report out of IL/IN as well as plenty of 50bpa+ soybean yields out of the same areas.  Soybean harvest will begin in earnest in the WCB this week.  According to COT data Friday, commercials are counting on farmers to sell a large portion of their soybean crop off the combine, something which hasn’t happened just yet.  Farmer selling of corn has also slowed to a trickle now that Dec corn is inside the $3.00-3.25 pricing envelope.  The fact many cash bids in ND have dropped below county loan rate due to transportation costs will also delay farmer marketings.

First for the stocks report tomorrow, average trade estimates peg corn stocks as of September 1st at 1.185bbu, in-line with the Sept WASDE number of 1.181bbu.  One thing to keep in mind with this year’s harvest, like last year, is there was very little new crop corn harvested prior to Sept 1, so Q4 demand wasn’t offset with new bushels.  This combined with the potential for larger ethanol production could bring stocks in slightly below the average trade guess, but the bullish implications will be limited given the massive harvest being picked.  Sept 1 corn stocks have exceeded the average trade guess in 6 of the last 7 years with the lone overestimation being the drought year of 2012.  Sept 1 soybean stocks are seen at 126mbu vs. the Sept WASDE guess at 130mbu and 141mbu last year.  The focus will be on the 13/14 soybean yield.  Sept 1 wheat stocks are pegged at 1.880bbu vs. 1.870bbu last year.  Tomorrow will also include final production numbers on small grains with the “other spring” wheat category seen rising from 572mbu to 580mbu.

Friday saw the Quarterly Hogs and Pigs report released which proved slightly bearish for hog prices, but slightly bullish for feed demand vs. expectations.  All Hogs and Pigs were seen at 97.7% of a year ago vs. estimates for 96.7%.  Kept for Breeding were 101.8% vs. 101.7%, and kept for marketing were seen at 97.3% vs. estimates for 96.2%.  The June-August pig crop was seen at 98.9% of a year ago vs. expectations for 97.8%.  Sept-Nov farrowing intentions were estimated at 103.6%, slightly above expectations of 103.2%.  It should be noted that the Sept 1 all hogs and pigs number of just over 65 million head is still the smallest for Sept 1 since 2006.  This coupled with the smallest cattle inventory since the 1950’s does not bode well for a continued increase in corn feed demand.

The latest COT data was also released Friday with trends continuing in soybeans as funds pushed their net short position to a new record of -86,227 contracts.  Commercials are now long a record +84,452 contracts.  To take a look at farmer marketings, I isolated the gross commercial short position of 2014 to date and plotted it against all other years going back to 2007.  The first chart below shows the commercial short as a percentage of O/I at 25.06%, by far the lowest of the last 7-yrs, and 15% below the 2nd lowest year.  This is a crude proxy for farmer selling, and would suggest it is near record lows for late-September.  The second chart below plots the Gross Commercial Long as a percentage of O/I which shows it at 32.02%, a record for late-September by 10%, and just off the highs from August.  In reading the tea leaves, these positions suggest the commercial exporter is short a very large amount of basis against export sales, but the farmer has sold precious few of the beans necessary to cover the sales.  This could have major implications if the farmer chooses to sell only what’s necessary this fall.  Basis could get erratic, and the demand for freight will keep premiums at record levels.

In corn, funds were modest sellers, with little activity recorded.  The third chart below shows the gross commercial short as a percentage of O/I against the last 7-yrs which shows 2014 as the 2nd lowest on the chart behind 2013.  Anecdotal reports suggest the farmer has sold very little new crop, and the COT data would back this up.  This also should cap rally attempts should the funds decide to cover.  In Chicago Wheat, funds sold modestly to push their net short position to -90,919 contracts.  This is not a new record on the Supplemental report, which is the preferred report to this analyst, but on the Disaggregated report, funds now hold a record short of -78,928 contracts going back to 1/1/2006.  Given that US wheat is working in MENA destinations, stress testing short futures against long puts might be prudent given the month and quarter-to-date performance of wheat.

One other note worth mentioning, late Friday the USDA reported it had found a second case of GMO-wheat in MT where Monsanto had legally tested seeds 11-years ago.  This was the second case following the more scrutinized discovery in Oregon last year.  The USDA said the wheat would be safe for consumption, but that none of it had entered commerce.  This is a concern given the news last week China had suspended import approval on two genetically modified traits found in soybeans.  Bloomberg is reporting this morning, however, that the two traits are not currently grown in commercial quantities, so the effect should be legible on US-China trade.  Many posited when China began declaring MIR-162 corn traits as unfit for import they were just brow-beating prices down.  The same could be true with soybeans, but the threat is not what our grain markets need.

Many have asked if there was a website to track daily LDP, PCP and County Loan rates given the evolving situation with ND cash markets.  The link below provides the data.

http://www.fsa.usda.gov/FSA/displayLDPRates?area=home&subject=prsu&topic=ldp-ldp

 

Bottom Line:  A slight short-covering bounce ahead of tomorrow’s reports looks warranted as harvest should be impacted this week with wet weather.  There is nothing macro-related to support our space, and the crop still feels as though it is getting larger.  Acres and yield remain wild cards, as demand still hasn’t shown up in a noticeable way.  Funds have their cards on the table, and the farmer has massive inventories to sell them should they decide to short-cover.  We need a bullish impetus, and the further we get into harvest, the more difficult it’s getting to find one.

 

Good Luck Today.

 

Gross Comm Short Soy 9-28 Gross Comm Long Soy 9-28 Gross Comm Short Corn 9-28

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

9/26/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index up 0.0620 at 85.2570; Euro down 0.00080 at 1.27470; The Russian Ruble is weaker by 1.10% to 38.6922; S&P’s are up 2.50 at 1964.00; Dow futures are up 30.00 at 16,930.00; 10-yr futures are up 0.04%; The Nikkei closed down 0.88% at 16,229.86; The DAX is up 0.08% at 9,517.47; the IBEX-35 is up 0.61% at 10,848.90; Gold is up $1.90 at $223.80; Copper is up $1.85 at $304.85; Crude Oil is up $0.44 at $92.97; Heating Oil is up $0.0071 at $2.7063; Paris Milling Wheat is down €1.00 at €149.75/MT.

Mixed global equity markets to close the week as investors remain especially nervous about the performance of stocks this week.  More salient in my opinion, however, has been the currency moves this week with the Dollar Index working on its 11th consecutive weekly rise, something not achieved in four decades according to Reuters.  Emerging market currencies joined in the global currency sell off yesterday with the Brazilian Real trading up 1.31% to 2.4254, the highest level since February, while the Russian Ruble trades up 1.10% this morning to 38.6922, just off the weakest level on record.  In addition, the Aussie Dollar, while steady this morning, fell 1.05% against the Dollar to the lowest level since February 4th, with the Canadian Dollar at the weakest levels against the Dollar since March.  The underlying markets which comprise the global economy aren’t giving off the rosiest signals.  The negative effect on commodities is palpable, and until we see a turn in some of the aforementioned, hard to believe the negative money flow towards our markets is going to subside.  Today will see another revision to Q2-GDP which is expected to be bumped to +4.6% from +4.2% previously.

Blank radar over the Midwest again this morning as early harvest efforts roll on.  Dry weather will continue the next 3-days across the Midwest before storms brewing up on the East side of the Rockies finally push into MT/WY/ND/SD/NE over the weekend.  As of this morning’s latest update, the Dakotas and W-NE should be impacted Monday-Tuesday with heaviest totals in SW-ND/NW-SD with up to 1.75” forecast.  Most of the Dakotas could see up to 0.50”.  The storm will expand by the middle of next week to bring rain to IA/KS/OK/MO/WI with a broad 0.50” with heavier localized amounts.  Still looking for a cool down in the extended maps with the 6-10 and 8-14 day below showing much below normal temps over the Rockies, while the ECB receives above normal temps.  The cool down occurs for everyone by the 8-14, and after some above normal precip, dryness takes hold late in the period.

 

Mixed to weaker markets to close out another soft week for Ag markets with corn down 5c on the week, soybeans off 39c and December Chicago wheat off just 2c.  US wheat markets aren’t the only ones under pressure with Paris Milling Wheat off €4.00/MT on the week following back to back €9.00/MT losses.  Paris has actually been dropping faster than US markets, possibly in response to the US winning GASC business earlier this week.  At any rate, the front-month spread between Paris Milling Wheat and Chicago Soft Wheat is now just $16.86/MT, the narrowest spread since October 15th, 2013.  Minneapolis and KC are seeing similar declines.  Even the spread between Paris Corn and US corn has narrowed significantly over the last several weeks with the spread now at $43.30/MT, near the lowest levels since September 2013.  In the US, the focus continues to be on anecdotal yield reports which are blowing the roof off old records, record high freight markets which are crushing the FOB bid to the farmer, and trying to gauge the interest of the end user with the lowest flat prices in four years.

Beginning first with the freight markets, cash traders noted barge freight on several river segments pushing to 1000% yesterday which would be a new all-time record.  Usually, if the demand for freight is that strong, the demand for the product on the freight is that strong, and premiums keep pace with strengthening freight.  This isn’t the case today with soybeans and corn.  In fact, soybean premiums have been getting weaker along with barge freight getting strong, pushing FOB bids down and delivery calculations sharply below gross delivery equivalence.  Using 1000% barge freight and CIF soybean premiums of +120X, Zone 3 is calculating around 46c below gross DVE.  Not bullish.  With 1000% barge freight and CIF corn premiums of +86Z, Zone 3 calculates 64c below gross DVE.  Not bullish.  Based simply on delivery math, interior elevators with current freight and current bids have a 23c incentive to sit on soybeans until FH-November, and a 38c incentive on corn to sit until December.  Obviously with sales on the books, it isn’t feasible to sit on grain that long, especially as the farmer tries to deliver.  This means something is going to have to change, likely in the way of firmer premiums to move grain.

The situation off the PNW isn’t much better, or possibly worse, with secondary BNSF freight now fetching $4500-5000/car.  Corn premiums were unchanged on Thursday at +145/145/140Z for SON, while soybean premiums were firmer to +230/220/205X for SON.  By the time an elevator tacks on $1.15-1.25 in secondary rail costs, on top of flat tariff rates of $1.25-1.50, and a handling margin, the bid to the farmer in the Northern Plains gets awfully crumby.  The railroads can try as they may to keep up with demand, but the back-to-back record crops in the Northern Plains along with all of the Bakken traffic is simply too much to handle, especially when you throw winter weather in.  The situation is not going to get better, and will probably get much worse as harvest progresses.  Attempting to store grain until next spring may be a producers’ best option.

The freight discussion offers a good segue into the LDP/County Loan conversation which was being had in circles yesterday.  With corn down yesterday, several counties in North Dakota actually saw their posted cash bids on corn drop below the County Loan rate for the first time in close to a decade.  In one spot in particular, Minot, the cash corn bid yesterday at one point was $1.81/bu while the County Loan Rate for 2014 sits at $1.90.  There are a lot of wrinkles and facets to this discussion, so treat this as the first in a line of many, but with the county loan option available, farmers aren’t likely to sell grain at current prices when they can meet short-term cash needs via Government loan while waiting to see if prices get better over the next 9-months.  Storing the crop while waiting becomes an issue, but aside from ethanol, feed and export, we need to remember there is a fourth demand center when prices get this low: LDP and MAL.  For a lot of people, myself included, we’ve never had to go through these exercises, but it’s time to get brushed up as this fall could see the area affected expand from ND to SD and MN.

 

Bottom Line:  Don’t expect too much out of grains today as trade inside recent ranges looks likely to finish out the week.  Today’s COT data should show funds adding to shorts in soybeans while possibly adding to length in corn now that prices have slipped inside the $3.25 envelope.  Wheat is picking up demand, but will need more than 1-2 boats headed to the Med Basin to clean up a 40% stocks/use.  Currencies will continue to affect our markets, and when equities are down 1.4% and the CRB-Index is also down 0.40% like yesterday it really speaks to the weak underlying fundamentals.  We haven’t had this well supplied of a grain and energy market at the same time since the 1980’s.  It’s time to readjust the goal posts.

 

Good Luck Today.

 

CPC 6-10 9-26 CPC 8-14 9-26

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

9/25/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index up 0.3370 at 85.3730; Euro down 0.00560 at 1.27310; Aussie Dollar down 0.68% at 0.87640; S&P’s are down 0.50 at 1990.50; Dow futures are up 2.00 at 17,141.00; 10-yr futures are up 0.09%; The Nikkei closed up 1.28% at 16,374.14; The DAX is up 0.46% at 9,706.62; Gold is down $9.60 at $1209.90; Copper is down $2.20 at $303.15; Crude Oil is down $0.01 at $92.79; Heating Oil is down $0.0059 at $2.6871; Paris Milling Wheat is up €1.50 at €154.25/MT.

Global equities are still feeling the positive vibes from yesterday’s new home sales in the US which showed the fastest pace since May of 2008.  In August, new home sales jumped 18% to an annual rate of 504,000 units, beating the 430,000 expected by economists.  In the US today we will see unemployment claims which are expected to jump 16,000 to 296,000 from last week’s big drop of 36,000 to 280,000.  Durable goods orders, also out later this morning, are expected to show a decline of -18.0%, reversing most of July’s surge of 22.6% due to aircraft orders.  The Dollar Index is breaking out to fresh highs for the move, and also trading at the highest level since June 28th, 2010.  The Index strength is coming once again at the expense of commodity currency weakness.  This morning, AUD and CAD are down -0.70% and -0.42%, respectively.  China?

Wide open radar across the Midwest this morning which will let early harvest progress continue.  The Midwest will continue dry the next 72-hours before shower activity picks up in MT/WY/ND/SD on Sunday with widespread totals of 0.50-1.00” being indicated for the area.  The rain will also push down into W-NE where as much as 1.50” is being touted.  The same system will push East at the beginning of next week to bring rai to E-NE and IA.  All told, the WCB should see a nice rain that shouldn’t impact harvest activity as not much is actually occurring in the states shown below.  Late small grain harvest could be impacted, however.  Extended maps from NOAA continue to suggest above normal precip for the WCB, and a slow cooling pattern to below normal by late in the 6-10.  The above normal precip is centered right over SD.  Cool and wet is not what the doctor ordered for FH-Oct.

 

Row crops are working on their second day in a row of gains, while the wheat market sputters at the opportunity of trading higher.  There isn’t a great deal of fresh news out there, which is probably why Ags are slowing the downside onslaught as recycled early yield reports can only shove us so low while still in September.  The next fundamental input will be the September 30th stocks report which Reuters released average trade estimates for yesterday.  Analysts are looking for stocks as of Sept. 1, 2014 on wheat of 1.880bbu, corn of 1.185bbu and soybeans of 126mbu.  These would compare with a year ago at 1.870bbu for wheat, 821mbu for corn and 141mbu for soybeans.  Our markets aren’t likely to spend a great deal of time dwelling on the stocks numbers with the prospects for such large crops in the fields.  They will have an impact on expectations for final production, however.  It is worth pointing out that over the last seven years, corn stocks have come in above the average analyst estimate five times, while beans have exceeded the average estimate six times in the last seven years.  The surprise, in corn at least, would be larger than expected stocks which might be the death blow, or help put the low in.

While old news now, worth noting the sharp drop off in weekly ethanol production yesterday which saw output fall to 889,000bbls/day, the lowest since March.  Weekly stocks fell by 213,000bbls to 18.592 million barrels, but remain the second highest since March.  Ethanol production at 889,000bbls/day is below the average pace needed by about 1.5%, so no alarm bells should be going off after one week.  Gross margins have been under pressure as of late, however, as estimated spot margins dropped to $1.13/gln in the latest week vs. $1.24 last week and $1.37 the week before.  Margins have also slipped below a year ago with spot margins at this time last year estimated around $1.22/gln.  DDGs prices have stabilized, but spot ethanol prices have plunged from $2.29/gln 2-weeks ago to $1.96/gln this week and vs. $2.72/gln a year ago.  The entire energy sector has been under pressure as of late.

Firmer HRW basis yesterday by 2-7c with 12.0% worth +137/147Z and 13.0% now +137/147Z.  14.0% was unchanged.  MGEX proteins were mostly unchanged with only slight changes.  14.0% indicated at +200/220Z with 15.0% at +600/610Z.

Export sales later this morning with what seen at 330-600TMT, corn at 400-1,000TMT, soybeans at 1,200-4,000TMT, soymeal at 150-250TMT and soy oil at 0-30TMT.

 

Bottom Line: Markets don’t posses a clear sense of direction today, but left to their own devices we might try and be higher as short covering takes place ahead of the weekend and the end of the month reports.  US wheat is competitive in global markets, but that doesn’t mean it deserves a big rally to take itself out of the running again.  Corn does feel closer to a bottom than either of the other two markets, but we have 90% of the harvest left to bring in.

 

Good Luck Today.

 

HPC 9-25

 

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.

 

 

 

9/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.0370 at 84.6960; Euro down 0.00130 at 1.28520; AUD up 0.43% at 0.88260; S&P’s up 6.25 at 1978.50; Dow futures are up 47.00 at 17,010.00; 10-yr futures are down 0.08%; The Nikkei closed down 0.24% at 16,167.45; The DAX is down 0.11% at 9,584.59; Gold is up $2.70 at $1224.70; Copper is up $0.05 at $303.55; Crude Oil is down $0.09 at $91.47; Heating Oil is down $0.0115 at $2.6771; Paris Milling Wheat is down €0.25 at €150.00/MT.

The global economic picture is becoming as fractured as ever with an improving Chinese economy while the European economy continues to muddle along or get weaker.  Chinese manufacturing surveys continue to suggest an improving sector there, while German business confidence dropped to 104.7 from 106.3 in August, and vs. analyst expectations of 105.8.  The index of business confidence is at its lowest since April 2013.  In the US today we will see August new home sales data which is expected to show an increase of 4.4% to 430,000 units, more than reversing the -2.4% decline to 412,000 in July.  The median price of a new home hit a record high of $268,600 in May before backing off by 7% in July to $269,800.  The US Dollar Index continues to consolidate near four-year highs, which without a breakout to new highs could prompt a momentum failure, which would be commodity-positive.

More showers moving across the WCB and Southern Plains this morning with S-MN/IA/KE receiving rain.  Week-to-date rainfall hasn’t been all that impressive with NE seeing several locations with 1.0”+ rains, as well as a smattering of KS locations in the 0.50-1.00”, but otherwise a mostly dry Midwest.  The forecasted 7-day precip maps this morning are putting rainfall towards the middle of next week for ND-NE with 0.50-0.75” being indicated at current.  Everywhere East of the Midwest will be dry the next 7-days which will result in heavy harvest activity.  Extended maps still look warm and wet for the majority of the Midwest with the above normal precip concentrated over the Northern Plains in the 6-10 but shifting to the ECB and Midsouth region by the 8-14.  Cooler temperatures and some frost risk is indicated around the first week of October which will need to be monitored.

 

A slight bounce in our markets this morning, led by wheat which finds itself up 1.1-1.3% across the three exchanges.  Wheat has been fighting it’s grain room brethren this week in trying to bounce modestly now that US prices have begun working into MENA destinations at levels cheaper than competing stem from the Black Sea and France.  This is a tall order, however, as corn and soybeans continue to plunge to new contract lows on a daily basis amid anecdotal yield reports which are blowing history out of the water… so far.  Still, wheat is probably entitled to a bounce given the improved value of US wheat, the large managed fund short position and the need for some semblance of premium as the HRW crop gets seeded.  Calendar spreads in wheat have been trending firmer for the last several days which certainly appears to be a leading indicator so far.  Funds might not be the only ones buying.

Fresh opinion indices were released by www.sentimentrader.com last evening, and although no fresh lows were recorded in the grains, soybean and wheat remain near the lowest levels on record.  At just 21%, soybeans sit near the lowest sentiment readings since 2004/05.  Combined with such a massive commercial long and non-commercial short, it would appear the current trajectory in soybeans is unsustainable.  Nonetheless, sentiment, in and of itself, is not a reason to turn bullish.  The CRB-Index, a basket of commodities, hit 32% for an opinion reading, the lowest since June 4th, 2012’s 32% which are the lowest since 12/8/2008 when the index hit 28%. Prior to 2008, one would have to go all the way back to 2001 to find a time when sentiment towards commodities was more negative.  Correspondingly, the sentiment score of the Dollar Index hit a new record going back to 1999 of 87%.  As has been mentioned in this space numerous times over the last several weeks, these points have not been lost on the managed funds.  The question is whether they will start to matter to index funds which remain big longs of the commodity sector, and the Ag space specifically.

Not much change to PNW and rail destination basis yesterday with corn trains going west worth +145/145/140Z for SON vs. +145/140/130Z a week ago.  HETX rail is bid +130/130/120Z for SON vs. +130/130/130Z a week ago.  The thing that has changed has been rail freight which is pushing up to records witnessed last year, and making elevator FOB basis, as well as levels paid to the farmer, much weaker.  Whispers in the market suggest spot or October BNSF cars are now commanding $4500-5000/car.  At this time last year, spot equipment was changing hands around $500-1000/car.  To put this in perspective, the difference between the two prices of rail cars adds $1.06/bu to the farmers cash bid.  Unfortunately, word from cash and freight traders suggest the situation isn’t likely to improve, but only get worse.  This could mean weaker cash basis yet this fall, and needs to be factored into storage decisions.  If these sorts of basis levels persist, I would anticipate the voice from the country getting much, much louder towards the railroads and DC.

The North Dakota Wheat Commission issued its latest weekly report yesterday suggesting overall averages from the harvest suggest a #1 grade with a 13.6% average protein level.  Test weight ranges from 60-61lbs, with damage at 0.5%, up slightly from 0.2% in 2013.  The average falling number is 375 seconds, down from 421 in 2013, with some areas worse yet due to harvest rains.  Vitreous kernels content show the largest divergence with 2014 falling to 56% vs. 73% in 2013 and 80% or higher in a normal year.  The aforementioned data is based on about 65% of the expected samples the Commission usually sees in a year.  High-pro HRS continues to command a large premium on the spot floor with 15.0% protein bid +600/615Z, while 14.0-14.5% pro sits at +210Z.  Volume is still heavy with 338 cars including 5 trains yesterday.  Duluth deliverable stocks jumped by 2.132mbu in the last week to 16.002mbu, in-line with a year ago at 16.280mbu.  The direction of the MWZ/MWH in coming weeks will tell us whether the supplies hitting Duluth are desirable quality or not.

One quick note on soybean open interest, yesterday it rose to 751,535 contracts, the highest level since 8/24/2012 when spot soybeans were trading $17.31/bu.

Ethanol data at 9:30am.

 

Bottom Line: A little “Turnaround Wednesday” as wheat prices feel like they’ve found some demand at these prices, and row crops need a bounce once in a while.  The next fundamental input will be the September 30th stocks report, but more important to the trade will be the onslaught of anecdotal yield reports in the coming 10-days.  Whether the earth-shattering yields continue or trail off will have a lot to do with bears’ ability to keep pressing for new lows.  Harvest lows are usually set in the month with the highest projected carryout.  Have we already seen it?

 

Good Luck Today.

 

CPC 8-14 9-24

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

9/23/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index down 0.2930 at 84.4560; Euro up 0.00510 at 1.28940; Aussie up 0.48% at 0.88610; S&P’s are down 4.75 at 1981.75; Dow futures are down 32.00 at 17,067.00; 10-yr futures are up 0.09%; The Nikkei closed down 0.71% at 16,205.90; The DAX is down 1.07% at 9,645.26; Gold is up $7.80 at $1225.70; Copper is up $0.65 at $304.50; Crude Oil is up $0.58 at $91.48; Heating Oil is up $0.28 at $2.7004; Paris Milling Wheat is  down €1.00 at €150.25/MT.

Global equity markets are lower for a host of reasons this morning including the US and several Arab nations going forward with airstrikes on ISIS in Syria, the US Treasury implementing stricter requirements for companies to move assets overseas via inversion and data from Europe showing manufacturing activity in Germany slowing.  The manufacturing PMI for Germany slumped to 50.3, the lowest level since June 2013, and below all analyst estimates.  Chinese manufacturing data fared better overnight with the HSBC flash survey showing a rise to 50.5 from 50.2 in August, beating estimates of a dip to 50.0.  A fairly large reversal in currencies this morning with the Dollar Index off 0.40%, while commodity currencies like the Aussie and Loonie are firmer after the drubbing seen in recent weeks.  The weakness in the commodity currencies speaks to the overall opinion of commodities in general as of late, which has been decidedly negative in the eyes of the investment community.  Slowing global growth, burdensome supplies in grains and energies and the expectation for rising interest rates in 2015 in the US are all combining to push commodities out of favor.  Money flow usually wins.

Decent sized system moving across NE/SE-SD/KE this morning bringing soaking rains to the WCB.  Rains will finish up in the WCB in the next 24-36 hours with totals in the aforementioned areas getting as high as 1.10” in E-KS.  Otherwise, the Midwest will enjoy a fairly open harvest week for farmers which have gotten cutting and picking underway.  W-ND/MT/NW-SD will see some rain activity later in the week which could impact the last few acres of small grain harvest.  The extended maps from NOAA don’t look especially inviting for early fall harvest in the WCB and Northern Plains as precip moves to above normal, while temperatures do hang around above normal.  Many areas of the west of the Mississippi are catching up on needed growing degree days, but a deluge of moisture at this point wouldn’t be favorable.  Southern Plains HRW is being planted in very good soil moisture.

 

Slightly easier prices this morning except for soybeans following fresh contract lows in most commodities yesterday as we continue to field large anecdotal yield reports, and the market begins penciling in higher yields for the October WASDE.  First up, however, will be the September 30th stocks report which will bring into focus the 2013 soybean crop, as well as a final tabulation on this year’s small grain harvest.  The 2014 HRS crop is likely to be revised higher, but this speaks nothing to the quality which is a much higher concern.  Last night’s crop progress report reinforced the need for an extended fall due to the maturity level of our crops with many central corn belt farmers choosing to start harvesting corn at 25-27% moisture.  Index funds remain stubborn holders of Ag commodities, a possible bearish feature, while managed funds continue to press the short side of our space.

Corn conditions on last night’s report were unchanged at 74% vs. 55% last year, an impressive resilience when most years see conditions drop due to the browning of the crop.  The crop is still the highest rated since 1994, although harvest sits at just 7% complete vs. 15% average.  The corn crop is 42% mature vs. 37% last year, but 54% average.  No threatening cold is seen the next 15-days, which is a positive considering just 9% of ND is mature vs. 39% average, MN at 19% vs. 41% average, WI at 19% vs. 35%, MI 24% vs. 39%, OH at 27% vs. 38%, IA at 37% vs. 60% average, and SD at 22% vs. 44% average.  Soybean conditions were down 1pt to 71% G/E vs. 50% last year, but remains the highest rated since 1994.  Soybean harvest was estimated at 3% vs. 8% average, with little to no progress mentioned north of I-80.  There was one field of soybeans being harvested in MN last night I can report.  Soybeans dropping leaves was estimated at 45% nationally vs. 44% last year and 53% average.  Spring wheat harvest was pegged at 86% complete vs. 92% average with ND at 82%, MN at 91% and MT at 81%.  HRW planting is 25% complete vs. 22% average with KS at 15% planted.

The big wheat news over the weekend and this week has been the US grabbing GASC business via one cargo of SRW, undercutting supplies from France and the Black Sea.  Russian exports of wheat have totaled 8.6MMT since July 1st, which are 26% higher than a year ago, but prices are now around $10-12/MT higher than similarly prices French and US stem.  Cash traders have said putting together a bunch of US-SRW which will meet MENA specs may be difficult moving forward given concerns about vomo in this year’s crop, but it certainly warrants revisiting currently employed short positions in wheat when US supplies are cheaper than the low-cost provider of the world.  Couple this with an 81,618 contract short position by the managed money in Chicago wheat and there is plenty of reason to be wary of some price strength.  Worth noting, however, is the fact funds are still long corn, which likely means they are spread wheat against corn.  If funds decide to unwind a rather large wheat spread position against corn, the corresponding order flow would be price negative to corn.  So in this specific case, a rising tide might not lift all boats.

One last note on the Dollar Index strength, earlier this morning the basket of currencies did hit 84.86, which is the highest trade since June 28th, 2010.  This leaves open the door for a run towards the 2010 highs near 87-88.00.  The strength in the US Dollar is leaving commodity currencies such as the Loonie and Aussie, as well as the currencies in importing nations, at multi-year lows as well.  The aggregate effect is price negative towards commodities as a whole, and especially the Ag sector.  If our multi-year highs in grain supplies weren’t enough, we have an incredibly strong dollar which can hurt exports to combat as well.  All of the aforementioned hurts investment demand from managed money, and could eventually be true for index funds as well who still hold sizable longs in the Ags.  The macro influence to our markets can’t be emphasized enough.  For the most part, it’s been a one-way street since 2008.

 

Bottom Line: Big crops still feel as though they’re getting bigger, and harvest weather looks pretty good for the next 7-days at least.  Whether farmers choose to hold or sell grain off the combine will have a lot to do with whether we make harvest lows early or late.  Investment flow is a negative for our space right now, and looking out at the horizon doesn’t appear much better.  Commodities, like all markets, have a cyclical influence.  At current, that influence is decidedly negative.  Consider option strategies as a way to alleviate cash needs and still retain ownership this fall and winter.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

 

 

9/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index up 0.2480 at 84.5710; The Euro down 0.00490 at 1.28750; The British Pound is up 0.07% at 1.6374; The Japanese Yen is up 0.08% at 108.7547; S&P’s are up 5.75 at 2018.00; Dow futures are up 68.00 at 17,328.00; 10-yr futures are up 0.03%; The Nikkei closed up 1.58% at 16,321.17; The DAX is up 0.68% at 9,864.32; The FTSE-100 is up 0.68% at 6,865.72; Gold is down $4.40 at $1222.50; Copper is up $0.20 at $309.60; Crude Oil is down $0.15 at $92.92; Heating Oil is up $0.0037 at $2.7160; Paris Milling Wheat is down €3.25 at €155.75/MT.

The “Yes” voters for the Scottish Independence referendum weren’t quite as successful as William Wallace with the “No” vote to remain in the Union with England receiving 55% of the vote.  The challenge to the Union was unprecedented in the 307-year history of the countries, and will surely signal change in representation and economic freedom moving forward.  Currencies traded especially erratic through the night as results were released with the British Pound jumping to 1.6515 on news the “No” votes would carry before easing to 1.6372 this morning.  The Japanese Yen also grabbed attention when It pushed to 109.4600 last evening, the weakest level against the Dollar since September 2008.  Such a weak Yen could hurt purchases of commodities denominated in US Dollars.  The CRB-Index could be breaking out below 2-year support with the weakness this morning.

Showers moving across ND and N-MN, otherwise quiet across the Heartland.  Spotty shower activity the next 5-7 days with best chances for precip in KD/NE/W-IA where heaviest localized totals early next week look to fall in N-KS to the tune of 1.50-2.00”.  Otherwise drier weather ahead, which should aid in early harvest efforts and maturation of the crop in the North.  Temperatures look to remain well above normal the next 15-days for the entire Midwest, but precip potential does begin to pickup late in the 6-10 and early in the 8-14 day slot.  In fact, above normal precip is being indicated for the Northern Plains September 26th-October 2nd as indicated by the map below.  This would aid recently planted HRW, but may impact soybean harvest in some WCB locations.  Nothing threatening just yet.

 

A particularly weak overnight session for wheat and soybeans with all December and November contracts witnessing fresh contract lows while the US farmer slept.  Technical selling pressure has remained a feature, and with a breakout to fresh lows on a daily basis, the move has risk of accelerating.  December corn continues to defend the $3.35 ¾ contract low from earlier in the week, but will have a difficult time doing so if wheat continues to plunge to new lows.  The market seems as though it is pricing in another build in supply, possibly from the Sept. 30th stocks report for wheat and soybeans.  It is widely expected the USDA will increase the 2013 soybean crop, which will put upside pressure on 2014 yields.  Also, the 2014 HRS crop is likely to receive an upward revision according to anecdotal yield reports from across ND.  Hard for demand to step in when supply is still getting larger.

Encouragingly, US corn out of the Gulf is back to the cheapest available stem in the Americas on a FOB basis with spot boats worth $164.66/MT through November.  This would compare with Argy at $166.63/MT and Brazil at $171.74/MT.  PNW stem is indicated around $190.25/MT, but obviously enjoys a  $19.34/MT freight advantage for routes to Asia.  Reuters reported yesterday a tow-boat sank near mile marker 104 to 106 near Chester, Illinois, causing the Coast Guard to restrict traffic on the river.  The tow boat was carrying around 3,500 gallons of diesel fuel and an unknown amount of lube oil aboard.  This should cause barge freight to rise given expanding harvest progress along the river corridor.  While two-days old, the USDA on Tuesday said Lower IL-River barge freight was worth 633% of tariff.

Yesterday, prominent EU cereal forecaster Strategie Grains updated their latest production estimates for the EU, increasing corn and wheat production above the USDA’s latest guess by 9MMT.  If the firm ends up being a pre-cursor to the USDA, US corn demand by way of exports might need to be revised even lower.  The amount of feed wheat, and now corn, available in Europe this year is sharply higher than a year ago and the last several years, reducing the demand for US corn.  The USDA just increased corn exports by 25mbu in the latest WASDE report to help account for the 300mbu increase in supply.  If the USDA is moving in the wrong direction on demand, but supply continues to increase on futures reports as the market seems to be suggesting, carryout could be getting set to balloon well north of 2.0bbu for 2014/15.  The US farmer’s love affair with corn could end up being the source of his heartbreak.

A couple of technical objectives worth pointing out which could offer longer-term support in the soybean market.  With fresh contract lows on a daily basis, one has to pan out on weekly charts for support.  In drawing some Fibonacci progression levels, one prominent area came in around $9.28, which would be the 100% progression of the $16.36-7.76 selloff in 2008 attached to the all-time record high of $17.89.  Essentially, if the selloff in 2008 is any guide, the length of that move from $17.89 lines up around $9.28 which is also a number being thrown around by fundamental and cash traders for harvest lows.  Watch momentum signals around that area for clues.  The analogous level in soymeal would be $297.50.  In looking at weekly Chicago Wheat charts, unfortunately, we continue to slice through long-term support levels like a hot knife through butter.  The only downside objective left between spot and the 4-handle are the June 2010 lows around $4.25.  Granted, that is 60c from current levels, but there just aren’t any support levels of note between here and there.  Wheat charts have done serious technical damage, but fortunately, funds are already short up to their eyeballs.

The latest Cattle on Feed report will be released this afternoon for supplies as of September 1st with placements during August expected to come in at 1.692 million head.  If that number turns out to be accurate, placements would be down 4.5% from a year ago, and be the lowest August placements on record going back to 1996.  Cattle on feed are expected at 98.9% of last year at 9.767 million head, which would be the lowest since 1999, while marketings are seen at 90.7% of a year ago at 1.697 million.  The marketings would also be the lowest since 1996.  All of the above bodes well for keeping cattle at all-time record highs, but bodes especially poor for corn demand.

 

Bottom Line:  Favorable yield reports, favorable harvest weather, end users on the sideline and an undersold US farmer are all contributing to fresh contract lows heading into harvest.  Technicians, like myself, can throw out downside targets, but until the market sees fresh, meaningful demand, prices are going to continue to drift lower.  Storage needs to be maximized to take advantage of any post-harvest rallies, while keeping cash needs close at hand.  Tighten up and keep your head down; the ride is going to be bumpy.

 

Good Luck Today.

 

CPC 8-14 9-19

 

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.