1/14/2015 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index down 0.0530 at 92.2570; Euro is down 0.00070 at 1.17640; S&P’s are down 7.25 at 2008.75; Dow futures are down 69.00 at 17,465.00; 10-yr futures are up 0.08%; The Nikkei closed down 1.71% at 16,795.96; The DAX is down 0.25% at 9,915.84; The IBEX-35 is down 0.35% at 9,930.80; Gold is down $5.80 at $1228.60; Copper is down $13.95 (-5.28%) at $250.45; Crude Oil is up $0.03 at $45.93; Heating Oil is down $0.0098 at $1.6232; Paris Milling Wheat is down €2.50/MT at €193.00/MT.

A lot of unnerving signals from markets this morning, especially in regards to interest rates and industrial commodities.  Slow growth fears contributed to the 10-yr US Treasury yield dropping to the lowest level since May 2013 while copper drops 5.0%+ to fresh 5.5 year lows.  The World Bank cut its outlook for global growth in 2015 and 2016 yesterday, fanning concerns the plunge in energies and metals is more attributable to weak demand that excessive supply.  On the other hand, imports by China of many commodities are surging with iron ore imports for 2014 up 13.8% on 2013 at 932.5MMT.  December imports were up 29% from November to 86.85MMT.  China has also been filling domestic crude reserves, and soybean imports in December were up over 8.0% from 2013.

It would appear the long-awaited warm up in US temps is finally here with the next several days expected to eclipse the freezing mark in even northern locales.  Temperatures will get into the high-40’s and low 50’s as far north as NE/MO/S-IL/S-IN as the weekend approaches, and this should help with some of the ice issues on the upper-IL River and in Chicago.  Temps will retain their warmer bias into the 8-14 day before a moderating of temps occurs in the West.  Precip patterns look to turn above normal, however, a switch from the past 15-days of below normal returns.

No big changes to SAM weather with the area of concern still NE-Brazil in the north, but northern Argentina has its own issues with too much moisture.  14-day precip returns ended yesterday in Argentina showed many locations in Cordoba, Santa Fe, Corrientes and Entre Rios with rainfall totals between 4-8.00”.  Many of these areas are the top production areas of both corn and soybeans, especially Santa Fe.  Based on the maps below, these areas will remain in the above normal precip category into the 8-14 with maybe some moderation late in the period.  Areas further south in La Pampa and Buenos Aires are actually a bit drier than desired, but nothing disastrous yet.  Nothing on the radar which looks set to half production in either country, but there are some issues which could delay harvest and/or take top end yield potential off the table if patterns don’t normalize soon.

 

A sloppy overnight session to follow up a weaker than expected day session yesterday as it seems our markets have taken a second look at the data received Monday, and what seemed bullish isn’t so anymore.  Not helping the situation is the broad-based commodity selloff occurring in energies, precious and industrial metals which raises the question of whether a long-only index vehicle is a suitable investment for diversification and inflation-hedging purposes?  Specifically to our markets, the corn market seems caught between slightly tighter supply, but signals which suggest weaker demand in coming weeks/months.  Despite this, basis levels have firmed almost every day this week as bin doors get locked shut.  Soybeans are fighting an uphill battle against South American production, even if a few trouble areas exist.  US wheat has a serious demand problem which is totally outweighing any short-term supply issues which may exist.  At times the forest is difficult to see from the trees, and right now, commodities seem to be falling out of favor with both managed and index funds alike.  Cash and spreads will continue to be our best indicators.

While several days old at this point, thought it worth pointing out from the most recent COT data the aggregate index fund long for C,S,W,MW,KW,SM,BO,LC,FC,LH,CC,KC,CT,SB given the discussion above.  As of 1/6, the combined position of those markets was 1,330,309 contracts, the smallest net long since 11/15/2011.  It has always been my goal to isolate Ag, Livestock and Fiber from energies and metals so as to get a clearer picture of the health of our sector specifically.  In this case, however, it appears as though the larger downward push by commodities in general is taking our space along for the ride.  Index rebalancing is taking place, but the articles about commodity index funds posting negative returns for the third year in a row isn’t lost on investors.  The commodity super-cycle and runaway inflation arguments just don’t have the same pull as they did when crude was $100/bbl+ and drought was taking hold in both North and South America.  If index fund redemptions continue, we will be removing a passive long underneath our markets which has been a staple going back to the economic crisis in 2008.

While still on the COT data, it is worth noting the changes in the corn position heading into the USDA reports.  Interestingly, the Gross Commercial Long (end user) bought heavily heading into the USDA report, with their position rising by 30,423 contracts.  Managed funds sold their net long down slightly, but remained at a healthy 169,212 contracts, near the longest since May.  The big difference between now and May, however, is the fact in May we had relatively little certainty about the US corn crop, while now we realize it was the largest on record.  Also, in May, crude oil was trading at $102/bbl, while now it is trading at $45/bbl.  With prices taking out some downside support the last two sessions, one needs to be wary of further liquidation by the managed funds.  One last note on the managed soybean position, the last several weeks have witnessed funds refusing to take a net position in the soybean market despite holding nearly 260,000 contracts of soybeans.  Similarly to corn earlier this year, funds could be waiting for the outcome of January weather in SAM before taking a large-scale soybean position, which if whether remains benign could be a significant short position.

Switching gears to the margins of corn end users, it’s been a tough week for those with an input as corn.  Margins as compiled by www.rjomrt.com showed gross ethanol margins slipping to $0.79/gln from $0.91/gln last week and $1.16/gln last year.  Margins at these levels would be the lowest since July of 2013 as ethanol prices continue to plunge with neighboring energies.  Broiler margins actually improved to 79.75c/lb from 75.84c/lb last week and 73.83c/lb last year.  Hog margins continued their plunge to $85.33/hd from $88.93/hd last week and $98.93/hd last year as margins here slide to the lowest since July of 2013 also.  Cattle margins remain weak near $40/hd, and C-IL cash soybean crush margins have fallen off notably as of late to $2.14/bu, but remain well above the $1.78/bu from last year.  NOPA crush data will be released later today with average trade guesses lining up near 166.9mbu vs. 161.211mbu in November and 165.384mbu in December of 2013.

Corn bids continue to improve with CIF NOLA trades all higher yesterday going home.  January had +62H trade, Feb at +63H trade, March at +62H trade and AMJ packages at +54/56K, higher.  As mentioned above, barge freight is higher due to icing issues on the Illinois River, so premiums are really just keeping pace with elevated freight near 500% on the IL.  Still, corn premiums are helping hold cash near gross delivery equivalence in Zone 3, which should help support spreads around current levels of -8.00/-8.50c.  Aside from the river, ECB train markets are also higher with Columbus and Evansville 90’s around +5H for spot, while Ft. Wayne 75’s are near -3H spot.  Ingredion is indicated around +0H with a 4c carry to March.  Despite a relative sense of confidence over the weekend, it is looking less likely China actually purchased US corn last week according to sorghum and DDGs pricing.  Both sets of premiums remain at handsome overs relative to corn, and in the case of DDGs, nearly 150% better than corn.  If China was banging out US corn boats, both of those commodities should see considerable weakness in their premium structure which to-date hasn’t happened.

Deliverable stocks reports were released yesterday, showing another sizable build on the MGEX with Duluth up 1.483mbu to 17.470mbu, and up 376,000 bushels from a year ago.  Minneapolis was relatively flat at 5.659mbu.  CME-SRW stocks saw a modest draw of 655,000 bushels on the week to put stocks at 61.775mbu vs. 50.531mbu last year.  Deliverable grades of SRW, however, stand at 41.413mbu vs. 46.855mbu last year with non-deliverable grades up well over 400% from a year ago.  Supply vs. useable supply.  KCBT-HRW stocks saw another healthy draw this week, down 2.167mbu to 46.384mbu vs. 67.325mbu a year ago.  These stocks levels combined with the Dec 1 stocks data mentioned yesterday do point a rather tight winter wheat situation, but the demand to make things interesting just does not exist.  Still, large and high quality winter wheat crops will be needed in 2015/16 to ensure stocks and carryouts don’t tighten further.  While it seems light years away today, winter wheat will begin breaking dormancy in other 45-days, giving us our first indication of what we’re going to be working with.

Weekly ethanol production out later this morning which will be watched very closely given the collapse in margins for producers as of late.  It would stand to reason we will see another dip in production and another build in stocks, unless gasoline demand rebounded mightily in the last seven days.  Still, even at last week’s production level of 949,000bbls/day, production remains well above the 900,000bbls/day needed to hit the USDA’s revised production target.

 

Bottom Line: Prices appear in for another sloppy session with corn support another 3-5c away.  Dynamics are changing quickly with energies and industrial commodities continuing their selloffs, while cash levels are remaining firm to improving, and SAM weather remains mostly favorable.  Corn and wheat need demand while soybeans need less competition.  Techs are turning heavy.

 

Good Luck Today.

 

6-10 SAM Precip 1-14 8-14 SAM Precip 1-14

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

 

 

 

 

1/13/2015 Morning Comments

Good Morning,

 

 

Outside Markets as of 7:00am: Dollar Index up 0.2490 at 92.2310; Euro down 0.00600 at 1.17870; Russian Ruble is off 4.54%; S&P’s are up 8.50 at 2031.00; Dow futures are up 81.00 at 17,652.00; 10-yr futures are up 0.21%; The Nikkei closed down 0.64% at 17,087.71; The DAX is up 1.21% at 9,899.87; The IBEX-35 is up $1.33% at 9,927.40; Gold is up $7.00 at $1239.80; Copper is down $8.00 at $264.55; Crude Oil is down $1.46 at $44.62; Heating Oil is down $0.0397 at $1.6144; Paris Milling Wheat is up €1.50 at €195.50/MT.

Crude oil’s workman-like selloff continues today with spot month pushing through $45.00/bbl to trade to the lowest level since the week of March 16th, 2009.  The force behind the drop in oil prices continues to be OPEC’s decision to not cut production, even though certain members such as Iran and Venezuela have been particularly vocal about doing something to alter oil’s current trajectory.  Analysts suggest Saudi Arabia won’t be willing to cut production unless US shale drillers agree to similar production declines.  US shale drillers apart of OPEC?!  Also contributing to the precipitious fall is the fact crude oil is not in contango, which will encourage owners of oil storage to fill up any and all available receptacles to earn a carrying charge, especially with interest rates remaining low.  US crude stockpiles probably rose to 384.1 million barrels in the week ended January 9th according to the median estimate in the Bloomberg survey of analysts for the weekly EIA report.  Supplies at that level would be up almost 8% from the 5-yr average, and production at 9.14 million barrels in December is the largest weekly production since records began in January 1983.

One to two more days of cool temps before the warm up across the entire US takes hold and provides a relief from the tundra like conditions which characterized LH-Dec and the first week of January.  Both the 6-10 and 8-14 day maps hold above normal temps as well, and the warm up in temps looks as though it is going to spur some moisture as both time slots have moved into above normal status on precip as well.  NE-Brazil remains a trouble spot the next week with below normal precip forecasted.  The rest of Brazil and Argentina look to have favorable conditions endure.  Forecasters are talking about a break in the dry pattern for NE-Brazil around the 20th of January.

 

 

Despite the sharp and decisive moves following the USDA reports yesterday, all of our major Ag markets are responding higher today, led by wheat which is up 1.2-1.8%.  Even the soy complex which put forth a particularly weak performance yesterday is trading firmer as it did not violate any longer-term support for March beans or meal.  Based on the data received yesterday, and the subsequent price reaction, it looks as though our Ag markets could be settling into ranges for the long-haul with focus slowly, but surely drifting ahead to 2015/16.  The soy complex feels as though it will be the first to move outside its $9.91-10.89 range, provided SAM weather and logistics remain a non-factor.  Corn seems as though it will have good support on setbacks to the $4.00 range, while an up-tick in demand will be needed to test the $4.25 area.  Wheat now has the luxury of a particularly wide range from $5.25-5.50 on the bottom side to $6.50 on the top side and could experience whipsaw trade as we juggle a weak US demand picture with a tightening 15/16 supply situation both in the US and abroad.  The next major fundamental input will be the USDA’s February Outlook numbers for the 15/16 crop years.

Plenty of changes in the various reports yesterday, although all-in-all, the trade came fairly close with most of their estimates with the exception of total corn production.  Beginning there, the USDA reduced the national average yield to 171.0bpa vs. 173.4bpa in December, while keeping harvested acreage unchanged for a drop in total production of 191mbu to 14.216bbu.  This was combined with a supply reduction for 2013/14 of 96mbu due to a 0.7bpa drop in national yield and a 0.2 million acre decline in harvested acreage.  All of the changes resulted in 2014/15 total supply dropping from 15.668bbu to 15.472bbu.  Demand changes included a cut of 100mbu from feed/residual to 5.275bbu, while ethanol demand was increased by 25mbu, resulting in ending stocks of 1.877bbu vs. 1.998bbu last month.  The lower feed/residual was obviously a product of lower Dec 1 stocks, which came in at 11.203bbu vs. average trade estimates of 11.123bbu and 10.453bbu last month.  Corn obviously traded firmer on the session, choosing to focus on the supply reduction as opposed to lower overall demand.  Some analysts have instead focused on the demand reduction and the potential implications it could have for futures USDA reports.  The 11.203bbu Dec 1 stocks number would provide us with a 2.189bbu feed/residual number for the first quarter which would be down around 5.3% from a year ago.  It is possible Q2-Q4 feed/residual could be above a year ago, but even with the USDA’s reduced feed/residual number, the WASDE board is still expecting a 4.7% increase y/y in F&R following the 5.3% decline in Q1.  The increase in ethanol demand was certainly needed based on recent production data, although the changing dynamics of the ethanol and energy markets bears watching in coming weeks to make sure the increase is justified.  Export demand was left unchanged, which is difficult to argue with from a commitments standpoint, but is troubling from an actual shipments standpoint.  Total corn commitments through 1/1 total 1,076.4mbu, which is down 3% from a year ago vs. the USDA forecast for an 8.7% decline.  Shipments are a mixed bag, however.  Shipments-to-date total 497.9mbu which are up 0.7% from a year ago, but not one week in the last 13 have hit the “needed” level per week to reach the USDA’s export forecast.  The level of shipments on the books occurred very early in the marketing year.  So as of right now, there is still no reason to cut exports as a large sales and shipping stretch can happen, but it’s something which needs monitoring.

Soybeans actually saw bullish data relative to trade expectations but saw a sharply negative reaction in the ensuing hours.  Total production was increased marginally from December to 3.969bbu, up 11mbu from a month ago, thanks to a 0.2bpa increase in the national average yield.  Harvested acreage was reduced 0.3 million to 83.1 million acres.  The 11mbu increase in supply was completely offset with a 10mbu increase in exports and a 1mbu increase in residual.  Dec 1 stocks of soybeans came in at 2.524bbu, well under the average trade estimate of 2.590bbu, but above last year’s 2.154bbu.  The 66mbu shortfall in Dec 1 stocks relative to expectations was actually the second largest downside miss on record behind only 2009.  It is very interesting that even though Dec 1 stocks were the largest since 2006/07, Dec 1 stocks as a percentage of Sept-Nov usage was 2.00, the third smallest on record behind 2012/13 and 2013/14.  This speaks to just how large the demand base has gotten the past several years.  Still, ending stocks were unchanged at 410mbu, and global ending stocks inched higher once again.  Despite the rampant demand for US soybeans, global ending stocks of soybeans are pegged at 90.8MMT, up from last month’s 89.9MMT, and up sharply from last year’s 66.2MMT.  A 37% increase in global ending stocks y/y is easily the largest percentage change on record.  A 1.5MMT increase in Brazilian soybean production to 95.5MMT certainly contributed.  While in the short-term the market may continue focusing on strong US offtake, it seems a matter of time until the market becomes satisfied with SAM growing weather and production.  Based on current supplies, the soybean market actually needs to get rid of a few acres before it becomes inundated with supply in 2015/16.  Soybean crush margins and shipments are strong, but they don’t appear strong enough to offset the surging global production and ending stocks levels.  Worth noting, Jan-July board crush spreads rallied 4-10c on the day with neither soybeans nor soymeal violating any serious long-term support.

Wheat had a mostly negative set of reports, although nothing which was glaringly bearish.  All wheat stocks as of Dec 1 came in at 1.525bbu vs. the average trade guess of 1.499bbu and last year’s 1.475bbu.  The larger than expected Dec 1 stocks were obviously resulted in lower than expected feed/residual which prompted the USDA to cuts is marketing year forecast from 180mbu to 150mbu.  This, along with a 2mbu cut in seed use, resulted in ending stocks rising to 687mbu from 654mbu last month.  Exports were left unchanged at 925mbu despite the fact wheat commitments are down 24% from a year ago vs. the USDA forecast only calling for a 21.3% decline.  Export shipments are also woefully weak at 519.3mbu, down 32.5% from a year ago with each of the last 12-weeks missing the “needed” level to hit the USDA export forecast.  Without a pickup in export sales or shipments in coming weeks, exports will need to be revised lower.  It is also important to remember that 2nd half feed/residual use is almost always a negative figure. With 1st half feed/residual being implied at 161mbu so far, and the marketing year estimate at 150mbu, there could be additional cuts in feed/residual down the road, although the USDA is likely to wait for updated stocks data on the March SIAP.  Regardless, total usage for June-November in the first half of the year was the weakest since 2009/10, and registered the fourth lowest demand total since 1985/86.  The demand picture remains especially weak, and almost seems to argue for lower prices to stimulate demand and justify current demand forecasts.

The supply side of the wheat ledger offers a bit more hope, however.  Yesterday also saw the Winter Wheat Seedings Report which pegged all winter wheat acres at 40.452 million acres, off from the average trade estimate of 42.564 million and off from last year’s 42.399 million.  The largest miss was seen in HRW which came in at 29.500 million vs. the average trade guess of 31.023 million and last year’s figure of 30.471 million.  SRW also missed to the downside at 7.500 million acres vs. the average trade guess of 8.039 million and last year’s acreage at 8.498 million.  In fact, HRW acreage at that level, if verified, would be the lowest total since 2011/12, and SRW acreage would be the lowest since 2010/11.

Switching back to the stocks report, there were also a few observations worth pointing out which could affect calendar spreads in coming weeks and months.  In looking first at HRW, the combined stocks as of Dec 1 in KS/OK/TX totaled 357.166mbu, down from last year’s 401.938mbu and the lowest Dec 1 total since 2008.  Similarly, the combined Dec 1 stocks of IL/IN/OH/MI totaled 151.736mbu, the lowest Dec 1 total since 2007.  Offtake by these select states also tells an interesting tale with stocks declining from Sept 1 to Dec 1 in IL/IN/OH/MI by -12.47% which is in line with the average level for the most recent 7-years.  Stocks in KS/OK/TX declined from Sept 1 to Dec 1 by 13.60%, however, the smallest decline between those two quarters since at least 2000.  Still, and in regards more so to SRW than HRW, the supply situation for 2015/16 has to be monitored especially close given the low outright level of stocks in these key delivery warehouse states, the composition of the supply inside those warehouses, and the expected decline in acreage amongst these major SRW players.  Should the supply situation not be refreshed with better and more quality in 2015/16, the tighter spread environment could roll forward into the 2015/16 crop year.  The same could be true for HRW if demand picks back up, but the shallow decline in HRW stocks quarter-to-quarter speaks to the demand issues there.  Either way, both classes of wheat will remain under the microscope in regards to winter-kill threats, emergence and acreage moving forward.  Below is a chart of the Dec 1 stocks in IL/IN/MI/OH.

Worth noting very quickly cash corn markets continue to appreciate yesterday as the market held and rallied.  PNW corn bids improved to +92/92/92H for JFM, up 3-4c from Friday’s levels and up sharply from a week ago.  CIF NOLA bids also improved by 2-3c with Jan indicated at +56/62H, Feb at +62H and Mar at +60/63H.  Part of the appreciation in bids can be attributed to firmer rail and barge freight markets which has BNSF equipment up to -$200/car vs. -$700/car a week ago.  Barge freight is also firmer amid concerns over ice conditions in Chicago and the upper-IL.  In response, the CH/CK has held firm in the -8.00c to -8.50c area, and should do so moving forward.  CIF NOLA soybean bids could be described as steady/better on the plunge yesterday while CIF NOLA SRW chopped in place but was described as off its highs of +100/105H from late last week.

 

Bottom Line:  Despite the bearish reaction from futures yesterday, price action today would suggest our markets are comfortable with the data we received.  Range bound trade could be setting up for the next few weeks until grain demand can be better assessed, and South American development gets through the critical month of January.  What is certain is the time frame for a weather disaster in either SAM country is slowly closing.  Farm gate movement could slow down now that the high risk report is behind us.

 

Good Luck Today.

 

Dec 1 SRW Stocks 1-13

 

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.

 

 

1/9/2015 Morning Comments

Good Morning,

 

Outside Markets as of 5:30am: Dollar Index down 0.2540 at 92.1140; Euro up 0.00270 at 1.18170; S&P’s are down 3.25 at 2051.75; Dow futures are down 37.00 at 17,781.00; 10-yr futures are up 0.07%; The Nikkei closed up 0.18% at 17,197.73; The DAX is down 0.48% at 9,789.93; The IBEX-35 is down 2.54% at 9,857.70; Gold is up $3.00 at $1211.50; Copper is down $2.10 at $274.85; Crude Oil is down $0.17 at $48.63; Heating Oil is down $0.0009 at $1.7101; Paris Milling Wheat is down €3.25/MT at €187.50/MT.

Global equities are mostly quiet ahead of the US employment report later this morning, although Spain’s stock market being down 2.50%+ is notable.  Spain’s largest bank, Banco Santander, fell 10% today as its board approved plans to cut its dividend and sell shares for as much as $8.8 billion.  Shares of the bank were suspended after volatile moves yesterday.  Economists are expecting employers to have added 243,000 jobs during the month of December which kept the unemployment rate at a 6-year low of 5.8% according to average estimates.  Crude oil is headed for its seventh straight weekly loss, tying the seven week stretch from 9/29-11/10 earlier this fall.  Both of those streaks would be longer than anything during the 2008 collapse, and appear to be the longest losing streaks since at least 1995.  The US Dollar Index has backed off 10-yr highs ahead of the US jobs report.

Scattered flurries across the Midwest this morning, but most importantly, the wind has subsided at least partially from yesterday’s ground blizzard status.  Winds will still blow 20mph+ across the entire Midwest today, but well off the 40-50mph winds witnessed yesterday in the Dakotas and parts of MN.  Temps will struggle to crack the mid-20’s until around Wednesday for much of the Midwest at which time a sustained warmup looks to take hold and push the Midwest near to above freezing.  6-10, and especially 8-14, day maps from NOAA confirm the warmup, but the 8-14 day window sees precip to dial up noticeably and push almost the entire continent into above normal status.  More verification will be needed.

There continues to be focus on the drying taking place in NE-Brazil, namely in Minas Gerias and Bahia, although forecasters continue to suggest favorable conditions elsewhere in the country can make up for any shortfall there.  Precip and temp maps do seem to confirm a drier and warmer bias for NE-Brazil, and even parts of heavier production areas such as Mato Grosso.  Still, CONAB released their latest Brazilian soybean production estimate yesterday, coming in 1.5MMT above the USDA at 95.5MMT.  Forecasters suggest this area needs moisture by January 20th to recover with minimal damage.  The maps below don’t imply a pattern change through January 22nd.  Stay tuned.

 

Mostly quiet trade overnight with corn sticking inside a 3c range, soybeans inside a 4c range and wheat remaining mostly inside a 7c range.  Unlikely to see substantial price volatility the day before the largest USDA data release of the entire calendar year, but most were surprised at the double digit losses yesterday in wheat.  The focus is squarely on Monday, although there are a few tidbits about exports and cash worth sharing to keep us entertained until 11:00am on the 12th.  A quick note on the volatility of the Jan WASDE, over the last 5-years corn has witnessed day of price reaction ranging from as little as 10c 2-years ago to 40c on the January 2012 report.  Over the last 10-years, the average price move has been just over 20c.  On soybeans the average price move over the last 10-years was 29c, and wheat saw an average price move of around 22c.  Data during the session does seem to be easing closing volatility to at least some degree, even if the volatility immediately following the release is heightened.

Starting first abroad, Commodity Weather Group released a midday update on the cold snap which affected Ukraine the night before last, coming as a surprise to most forecasters.  Overnight readings came in as much as 5-10* F colder than models had indicated, with lows in area with snow cover less than 2” in the 0 to -6*F range.  The concern with this particular area in central Ukraine is the fact it saw less than half of normal rainfall during the fall establishment period, leading to especially poor development and winter hardiness.  The impacted region accounts for about 28% of total wheat acreage, but cold losses are expected to impact 5-10%.  This would put potential production losses around 1.5-3.0% according to CWG.  Ukraine is due for an uptick in snow cover which should limit additional losses in coming weeks.

More clarity has emerged on the Ukrainian Ag Minister meeting with major traders regarding exports and local markets next week.  The meeting is scheduled for January 13th, and the government more or less wants to know traders plans for the rest of the marketing year in regards to milling wheat shipments.  The meeting seems precautionary, but tensions have been elevated following Russia’s decision to impose a €35/MT export duty on all grains beginning February 1.  Officials have no plans to limit exports from Ukraine, but said the Ag ministry was likely to prepare a memorandum with traders for the 2014/15 season as it has done previous seasons which allows for restrictions should volumes cross a certain threshold.  Ukraine has exported about 80% of its exportable wheat surplus with 8.5MMT of wheat shipped as of early January vs. 10.5MMT available for the entire season.

A few small wheat snippets yesterday included India reporting wheat in government warehouses as of Jan 1 at 25.1MMT, nearly three times the target level.  This is leading some to think India could soon be offering wheat in international tenders given the major issues India has with storing excess supply.  The Buenos Aires Grain Exchange on Thursday revised their Argentine wheat production estimate down from 11.5MMT to 11.2MMT in response to high winter temps and persistent heavy rains which reduced soil quality.  The USDA currently has Argentina pegged at 12.0MMT.

Egypt’s GASC bought 180,000MT of French wheat yesterday at an average price of $263.64 C&F, ranging at $248.94-250.25 FOB.  US wheat for nearby slots would be around $243.21/MT FOB, but French wheat holds an obvious freight advantage.  Reported CIF NOLA SRW bids did creep higher yesterday on the news with premiums thought to be around +95H for Jan/Feb, up 5-10c on the week.  Part of the strength could be the Chinese purchase, even though this occurred on the back end of the old crop curve.  Still, milling quality SRW is in precious short supply this year, and a rising tide can easily lift all boats.

As noted yesterday, corn and wheat export sales for the week ended Jan 1 were abysmal with cancellations in wheat hurting weekly totals.  Unknown and Nigeria both canceled wheat in the last week, but it is worth pointing out Iraq did purchase 50,000MT of US-HRS, swing business which has been notably absent in recent weeks.  The current export sales objective for wheat looks very difficult to achieve and could be ripe for a cut on Monday’s WASDE.  Commitments as a percentage of the marketing year forecast as of yesterday’s data put soybeans at 90.1%, corn at 61.5%, wheat at 74.0%, SBM at 63.7% and SBO at 48.2%.  The marketing year for wheat began June 1, while corn and soybeans began on Sept 1 and products on Oct 1.


 

A couple thoughts about Monday’s WASDE report.  As mentioned earlier this week, for all of the focus on pegging the numbers exactly, Dec 1 stocks are likely to come in 600-700mbu larger than a year ago on corn, 400-500mbu larger on soybeans and 20-30mbu larger on wheat.  These extra supplies will offer a substantial buffer against any unforeseen demand surprise the rest of the marketing year, provided the average analyst estimate isn’t substantially off from the USDA.  It should also be noted the range on Dec 1 stocks from high estimate to low is 505mbu for corn, 340mbu on soybeans and 185mbu on wheat.  Even using the lowest reported estimate still looks to have Dec 1 stocks on corn up 360mbu from a year ago, beans up 250mbu but wheat off 75mbu.  If the low end proves correct, it can be debated on whether current prices reflect that supply level, but more supply over last year can’t be debated.

The biggest source contributing to the range of estimates is of course Q1 feed/residual on corn as exports and ethanol are largely know.  The thing which is concerning to this analyst is what the average trade guess for Dec 1 stocks implies about feed/residual during the first quarter.  Based on the average trade guess for Dec 1 stocks of 11.123bbu, the trade is pegging Q1 feed/residual at roughly 2.400bbu which would be essentially unchanged from last year.  This despite the fact cattle-on-feed during Sept-Nov were down 1%, all-hogs and pigs during the quarter were essentially unchanged and the broiler hatch was up around 2.4%.  One must also remember that ethanol production ran a solid 5-7% better than a year ago, resulting in more DDGs production, at a time in which exports to our largest origin (China), dropped to virtually nothing.  Livestock feeding margins were excellent on poultry and hogs during the fall, which could argue for ramped up inclusion rates, but this was also cited as the reason for the uptick in corn feed/use a year ago as well, raising the question of how much more corn could be included in rations?  This doesn’t seal the argument for a bearish Dec 1 stocks report, but simply offers some caution about assuming a bullish tilt, especially with managed funds carrying the largest net long position since May of last year.

Also worth mentioning heading into Monday: November to January US corn and soy yields typically advance during record yielding years, especially on the final report.  South American soybean production is expected to be up 9-10MMT over a year ago, offering a further buffer against any changes in the US.  The WASDE board increased global stocks of corn and wheat on the October, November and December crop reports.  A 2-3MMT cut in Russian wheat exports, which is widely expected and priced in by now, can easily be made up by the EU by itself, let alone Canada and Australia.  Lastly, it should be noted that corn acreage has been increased from the November to January crop report 8 out of the last 10 years with the only declines coming in 2012 and 2006.  Soybean acreage has been increased 5 of the last 8 years, although both saw substantial declines in the late 90’s.


 

 

Bottom Line: Not looking for much in today’s trade, although the technical damage done to wheat yesterday could offer some more selling pressure as the day wears on.  The focus is Monday, and it isn’t worth outguessing the USDA at this point.  Review marketing levels and stress test positions accordingly.  Grain Marketing and Risk Management isn’t for heroes, it’s for producers and participants who want to be around tomorrow.

 

Good Luck Today.

 

6-10 SAM Precip 1-9-15 8-14 SAM Precip 1-9-15 6-10 SAM Temp 1-9-15 8-14 SAM Temp 1-9-15

 

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.

1/8/2015 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index up 0.5860 at 92.4760; Euro down 0.00880 at 1.17670; The Japanese Yen is off 0.77% and the Swiss Franc is off 0.76%; S&P’s are up 19.50 at 2039.00; Dow futures are up 178.00 at 17,685.00; 10-yr futures are down 0.30%; The Nikkei closed up 1.67% at 17,167.10; The DAX is up 1.66% at 9,675.71; The IBEX-35 is up 1.96% at 10,085.10; Gold is down $4.30 at $1206.40; Copper is up $0.40 at $276.25; Crude Oil is up $0.09 at $48.74; Heating Oil is down $0.0027 at $1.6972; Paris Milling Wheat is down €0.50 at €196.25/MT.

Global equities are pushing higher today in part on the Euro dropping to a fresh nine-year low this morning, which some think could trigger additional stimulus from the ECB.  In addition, minutes from the December FOMC meeting read as though several members are a bit concerned about global growth prospects and deflation, despite the fact they intend to remain on track with their rate tightening schedule in 2015.  The US Dollar Index is making fresh highs for the move at 92.5280, just ticks below the November 2005 highs at 92.6300.  Should that level be breached the Dollar Index would be trading at the highest level in 12-years.  Unemployment claims out later this morning are expected to drop 8,000 to 290,000.  Tomorrow we will see the December unemployment report which is expected to show an increase in payrolls of +240,000 while the unemployment rate is expected to drop -0.1 to 5.7%.

High winds will be the feature across a big swath of the WCB and Northern Plains as the Dakotas, parts of MN and NE are expected to see sustained winds of 30-40mph and gusts to 45-50mph, creating blizzard-like conditions in many areas.  Don’t expect the movement of commodities to be smooth this week, whether by truck or rail.  Still looking at a drier trend in the Midwest the next 5-7 days, although moisture will pick up significantly in the US-SE towards the end of that period with 1.00-2.50” totals expected from E-TX up through VA.  Precip remains drier through the 6-10 before picking back up in the 8-14 for I/IL/MO/IN.  Temps will see a gradual warmup beginning Monday.  One more day of chilly temps tomorrow morning and day before some solace in the teens.  Winterkill threats tomorrow morning, but damage is expected to be limited thanks to recent snow.  Still some concern in NE-Brazil over moisture, and the below normal trend looks to stay in place through the 8-14 day period.  Temps will be normal to above the next 15-days.

 

Tight-ranged overnight trade for our Ag commodities with ranges taking hold ahead of Monday’s all important USDA reports.  The trade seems to be setting itself up in distinctly different ways for each commodity.  Ethanol data out yesterday confirmed the effect the overall energy sector is having on that industry, raising doubts about production potential down the road.  After China acquired two cargoes of US spring last weekend, it’s looking increasingly likely they also purchased at least one cargo of US-SRW as they acquire blending stock for low protein reserves.  The fact China continues to buy soybeans from the US, and is now buying DDGs and wheat, is certainly providing support under our markets.  One other issue grabbing attention is potential export restrictions now coming out of Ukraine as high level meetings get set to take place there next week.

Beginning first with the ethanol data, production fell 23,000bbls/day to 949,000bbls/day, the third straight weekly decline in production.  Stocks saw a sizable jump, however, rising 751,000bbls to 18.845 million barrels, the highest since March of 2013.  The drop off in margins thanks to declining ethanol prices and static corn prices is having a serious effect on production.  In addition, weekly gasoline demand saw a notable drop of 800,000 bpd to 8.8 million bpd, undoubtedly contributing to a rise in stocks.  Further, the fact ethanol continues to trade a premium to RBOB Gasoline futures through March isn’t encouraging any discretionary blending above and beyond the mandated level.  The ethanol deliveries from the 6th combined with calendar spreads working back to a carry speaks to the soft cash market and the downward pull on futures.  The ethanol industry was not built and predicated upon a $40-50/bbls crude price, and expectations about corn demand and ethanol production above and beyond the mandated levels may need to be revised if current conditions roll forward.

As noted above, it looks as though China acquired at least 60,000MT of US-SRW for June shipment to go along with the 120,000MT of US-DNS they purchased over the weekend.  The interesting thing will be meeting the Chinese specs for the SRW, which are more stringent than standard US 2 SRW.  The Chinese specs are said to be minimum 300FN and max 1ppm Vomi compared with standard US grades of 250FN and max 2ppm vomi.  Current bids for CIF NOLA SRW for June are said to be around +58N, but the Chinese business was rumored to have taken place at +100N, equating to a 40c premium for those specs.  Price shows how difficult meeting those specs will be that early in the harvest cycle with nothing known about 15/16 quality.  As of right now, traders don’t think this is a larger, strategic reserve building program, but instead China acquiring blending stock for low quality domestic wheat.  Will have to monitor closely, but either way, any additional demand for quality SRW, at any point on the forward curve, could put further strength under spreads until quality can be reliably sourced.

While still on wheat, there is chatter emanating from traders that Ukraine’s Ag Minister intends to call industry meetings next week to discuss potential export restrictions.  At this early stage, it isn’t clear whether potential restrictions would be centered on milling wheat, corn, or both.  At this point in the marketing year, Ukraine is thought to have worked through surplus milling wheat stocks, with maybe 1MMT of desirable tonnage remaining, possibly making the entire exercise a moot point.  However, traders do think there is as much as 7-8MMT of maize left to move yet, and could be hamstrung by potential restrictions.  One major question popping up is why Ukraine would be entertaining export restrictions.  For starters, official statistics published Tuesday peg inflation in Ukraine at 24.9%, up 0.5% from 2013 and just below the 25.0% level witnessed during the global economic crisis in 2000.  Contributing to that inflation has been the dismal performance of the Ukrainian Hryvnia which has fallen to 15.83:1 against the US Dollar compared with 8.26:1 at the beginning of 2014.  All former Soviet countries recognize the importance of keeping food, especially bread, cheap, regardless of potential economic shortfalls.  This situation will have to be monitored closely in coming days as it could further affect global trade flows until 15/16 production in the Northern Hemisphere is harvested.

Export sales released this morning were very disappointing on grains, but respectable for soybeans.  Corn sales were reported at 387,600MT of old crop and 210,000MT of new crop vs. trade estimates of 600-800,000MT.  Wheat sales were pathetic at 151,000MT vs. trade estimates of 200-400TMT.  Soybeans were strong and above estimates at 910,600MT of old crop compared with guesses of 400-600TMT.  Meal sales were light at 37,300MT and soy oil sales were slightly better than expected at 30,200MT.

 

Bottom Line: Trade should maintain recent ranges into Monday as farmer selling grinds to a halt and major end users await fresh guidance from the USDA.  Basis and spreads don’t suggest futures have a big upside function to perform at the moment, but that can and likely will change in a couple sessions.  The trade seems as though it is leaning long on corn heading into the reports, which could be a concern as everyone knows how much corn the farmer has left to market.  The aforementioned export sales should also raise caution flags for corn.  Keep positions tight as we enter this volatile series of numbers.

 

Good Luck Today.

HPC 1-7-15

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.

 

 

 

 

1/7/2015 Morning Comments

Good Morning,

 

Outside Markets as of 6:40am: Dollar Index up 0.4270 at 91.9230; Euro down 0.00730 at 1.18480; Russian Ruble is down another 3.50% today; S&P’s are up 13.75 at 2008.25; Dow futures are up 110.00 at 17,400.00; 10-yr futures are down 0.136%; The Nikkei closed unchanged at 16,885.83; The DAX is up 1.08% at 9,571.55; The IBEX-35 is up 1.03% at 9,973.20; Gold is down $6.90 at $1212.50; Copper is down $0.85 at $275.85; Crude Oil is up $0.33 at $48.26; Heating Oil is down $0.0148 at $1.7114; Paris Milling Wheat is unchanged at €197.00/MT.

European data out this morning is grabbing headlines, thanks in part to the continuing plunge in crude oil.  Eurozone inflation dropped to -0.2% in December, lower than expected and far below the European Central Bank’s medium-term target of just under +2.0%.  The move to deflation is due in large part to crude trading below $50/bbls, and is putting pressure on the euro which is down 0.60% on ideas the data could trigger more money printing in the EU.  On a bright note, German unemployment fell for a third month in December by 27,000 people to 2.841 million which puts the unemployment rate at 6.5%, the lowest level on record.  The US Dollar Index made new highs this morning of 92.0600, trading just below the 11/14/2005 highs of 92.6300 which if traded above would leave precious little resistance up to 2003 levels around 99.3700.  Our friends at www.sentimentrader.com published their latest Opinion Indices last night and showed the US Dollar Index at 89%, the highest reading they have on record going back to September 1999.  Not unusual for frothy readings when making new highs, just a word of caution.

Frigid temperatures across the Midwest this morning before a warmup takes hold tomorrow with temperatures rising back towards the teens, but cooling off again towards the weekend.  The map below from NOAA shows low temperatures ending Saturday morning at 6:00am with widespread zero or below zero temps across the Midwest.  Snow cover did increase the last 24 hours as seen in the second map below, so SRW areas of OH/IN/IL should see a bit better protection, although areas in MO/S-IL/S-IN/KY may still be at partial risk.  Precip should remain fairly quiet the next week, and a general warm up is seen for the entire Midwest beginning mid-month.  Below normal precip is also expected to be a feature the next 10-days.

 

Modest price strength this morning in the row crops while wheat has put forth a choppy overnight session.  Not much on the tape for market moving stories as traders position ahead of the all-important January 12th reports.  Average trade estimates for final production as well as December 1 grain stocks have been released by newswires, and just glancing through them it looks as though getting a bullish report may be difficult.  Regardless of where the numbers fall in relation to the average trade estimate, one must remember corn stocks as of Dec 1 are slated to be around 650mbu larger than a year ago, and soybeans stocks are expected to be up 440mbu y/y.  There will simply be a larger cushion this year than last to meet any unforeseen demand, and as we are watching the energy sector plummet, meeting unforeseen demand might not be the issue.  For curiosity’s sake, March corn on this date a year ago was trading at $4.26 vs. $4.04 this year, March soybeans at $12.76 vs. $10.54 this year and March Chicago wheat at $6.02 vs. $5.90 this year despite the prospect for Dec 1 stocks to be up 650mbu on corn, 440mbu on soybeans and 20-30mbu on wheat.  Crude oil on January 7th, 2014 closed trading at $93.84/bbls vs. $48.31/bbls this year.

Sticking with our discussion on energy, there were 49 ethanol tickets registered for delivery with the CME Registrar last night, mainly in Argo, IL.  The deliveries clearly speaks to the weakening basis in the ethanol market, and what would appear to be an oversupplied situation due to the run-up in production the last several weeks.  Ethanol spreads have been weakening in response with the front-month ACG/ACH now sitting at a carry after trading at an inverse as recently as January 2nd.  This situation was inevitable as ethanol has been trading at a premium to RBOB since mid-December, which gives blenders zero incentive to blend anything above and beyond the mandated level.  The drop in ethanol prices and the relatively static corn market has obviously hit ethanol production margins which were estimated at $0.91/gln last evening, down from $1.06 last week and $1.25 last year.  Broiler margins recovered nicely during the last week, but hog margins slipped once again, reading at $88.93/hd, down from last week’s $93.54/hd and last year’s $98.83/hd.  This entire paragraph is a concerning one for corn demand and shouldn’t lead to a bounce in basis anytime soon.

Jumping over to wheat, deliverable stocks in CME warehouses were released yesterday afternoon, and while Chicago didn’t see any major changes, KC continues to decline.  KCBT stocks as of January 2nd were reported at 48.55mbu vs. 50.416mbu last week and 69.445mbu a year ago.  We could see some pretty historic numbers by the time new crop comes around in May/June.  MGEX wheat stocks continued their seasonal increase with the Lakes being closed as combined stocks in Dul/MPLS rose to 21.585mbu vs. 20.954mbu last week and 21.072mbu last year.  MPLS and KC spreads have been on a firming trend the last several sessions, and if the recent uptick in export activity actually leads to an improvement in basis, the worm might be turning on this wheat market.

Old news today, but thought it worth pointing out the decline in winter wheat conditions as reported by select states on Monday evening.  IL reported winter wheat conditions declining to just 24% G/E vs. 56% G/E at the end of November.  KS conditions were pegged at 49% G/E vs. 61% G/E at the end of November.  NE fell to 57% G/E from 69% G/E in November, while OK conditions were unchanged at 54%.  The aforementioned cold snap isn’t going to do conditions any favor for acres without snow cover, although it is difficult to assess conditions when wheat is in dormancy.  Take them for what their worth, but worth keeping in mind as we near the end of February/beginning of March.

BNSF shuttle freight has witnessed an uptick this week to around -$600/car bid compared with -$1000/car bids a week ago, thanks in large part to some big cancellations the last 10-days.  As freight plunged below tariff, shippers began canceling the freight, with cash sources suggesting as much as 1.5MMT worth of freight could have been canceled in total for JFM.  Assuming this figure is accurate, it would amount to around 58mbu of corn, or 131 shuttle trains.  Chatter has emanated that business could be switching to the Gulf, although bids remain fairly tepid around +49H for Jan and +55/57H for Feb.  If the pull does come from the Gulf more exclusively, keep an eye on CH/CK spreads as -8.50/-9.00c may be a spot to opportunistically bullspread or move hedges further out the curve.

 

Bottom Line: Looks like a choppy session is setting up, and some weakness after the past two days wouldn’t be unreasonable.  Ethanol production at 9:30am will be watched closely given the plunge in ethanol prices, 49 fresh ethanol deliveries and falling production margins.  These very recent developments won’t affect Dec 1 stocks, but declining production margins for end users of corn doesn’t bode well for basis improvement.  Trying not to read too much into day-to-day price action until Monday, but soybeans are knocking on the door of resistance.

 

Good Luck Today.

 

Min Temp 1-7 Snow Cover 1-7

 

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.

 

1/6/2015 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index up 0.2570 at 91.6330; The Euro down 0.00520 at 1.18940; The Russian Ruble Is off 3.90% at 63.1295; S&P’s are up 3.00 at 2019.00; Dow futures are up 23.00 at 17,473.00; 10-yr futures are up 0.27%; The Nikkei closed down 3.02% at 16,883.19; The DAX is up 0.48% at 9,518.59; The IBEX-35 is up 0.04% at 9,997.70; Gold is up $5.20 at $1209.20; Copper is down $0.25 at $276.35; Crude Oil is down $0.80 at $49.24; Heating Oil is down $0.0187 at $1.7310; Paris Milling Wheat is down €0.25 at €202.50/MT.

Some stabilization in global equity markets after yesterday’s rout on the heels of oil plunging through $50/bbl, the lowest trade since the last week of April 2009.  Every trader of every asset class on the planet is having to readjust matrices, pricing expectations, relative value assumptions, etc. now that oil has entered a lower pricing paradigm.  A tad better economic data out of Europe overnight, which they desperately need, as the euro-area services and manufacturing survey rose to 51.4 from 51.1 in November.  December French Consumer Confidence rose to 90 from the November reading of 88.  In the US today we will see Factory Orders which are expected to decline -0.50% m/m, while the ISM Non-Manf. Composite is expected to come in at 58 from the previous reading of 59.3.  The US Dollar Index has only the November 2005 highs at 92.6300 left in its way before taking out all applicable upside resistance in the form of actual price action.  Low oil and a high Dollar are two shifts we’ve all got to get used to.

Snow moving across the East Coast of the US, so travel should become snarled for travelers there.  Following that round of moisture, the Midwest is actually going to be rather dry for the next 7-days with cold temps accompanying.  Wednesday sees high temperatures plunge across the Midwest with below zero highs in ND/SD/MN/WI/IA while single digits extend to MI/IL/IN/OH/NE/KS.  Low temps that night will get to double digits below zero for many areas.  Things gradually warm up into the weekend, but remain well below normal until 20s and 30’s return on Sunday.  6-10 and 8-14 day maps from NOAA keep a cooler bias for most of the Midwest.  Precip will be below normal north of I-70 and above normal below that line, much the way it’s been the last 30-days.

Nothing to really add on South America as weather remains fairly benign except for far NE-Brazil which would include Bahia, eastern Minas Gerais and Espirito Santo.  Dryness will be the feature the next 7-10 days with soil moisture not able to keep up with evaporation.  However, it is important to note that Bahia is only around 4% of Brazil’s total soybean production while Minas Gerais is around 5%.  In the grand scheme of Brazil, only around 9-10% is currently experiencing some unfavorable weather while the rest of the country is experiencing some top soil concern.  See map below.

 

Ag markets are following through with light strength this morning after the impressive bounce witnessed across the board yesterday.  The real feature was soybeans which saw gains at the close of 37c per bushel in a bit of correction from last week’s selloff, reaction to the 233,000MT of soybeans sold to China for the 14/15 marketing year and the proximity of the Jan 12 WASDE.  Cold temps this week lent strength to the wheat markets as snow cover is less than ideal to face double digit below zero temps, although snow the next 24 hours should help.  In addition, there was chatter amongst cash traders, and eventually picked up by Reuters, China acquired some US hard wheat and could be in for more to blend with domestic reserves.  Yesterday was impressive, but nothing has changed from an overall chart perspective and isn’t likely before January 12th.  Ranges should rule until S&D’s are updated.

Reuters reported yesterday afternoon China has bought around 120,000MT of hard wheat in past days with origins likely to be the US and Australia.  The story talked about import demand for wheat seeming stronger than previously expected, but most cash sources suggest the purchase is to blend with lower quality domestic reserves.  The wheat of choice was said to be US Northern Spring, but traders also suggested China could be interested in US-SRW as well.  The difficult thing with China coming after a large tonnage of US-SRW is assembling the necessary tonnage.  As has been discussed here, non-deliverable grades of SRW stocks are up over 400% from a year ago, while deliverable grades are down around 14.9% y/y.  Further, Chinese specs for buying US-SRW are said to be minimum 300 Falling Number and max 1ppm vomitoxin, which compare with grades for standard US #2 SRW at 250FN and max 2 vomi.  In order to get desired Chinese specs, premiums in the area of 50c are said to be needed to assemble necessary tonnage.  With bids for CIF NOLA SRW around +85/90H, the premium would be a new high print for the marketing year.  Just difficult to pull off.

On an aside, thought it worth checking to see if China had been buying wheat elsewhere in North America for a blending program, but that doesn’t seem to be the case.  Through November, China has purchased just 31,500MT of total wheat from Canada vs. the 214,500MT from the US.  Canada had their own round of quality issues this year, just as North Dakota did with FN, protein, TW, etc.  Worth keeping an eye on, but as of this juncture, doesn’t look like China is assembling a massive wheat import program under the radar.

Really don’t need to point out the glaringly obvious head-and-shoulders pattern on daily wheat charts with the recovery from ½ looking as though it is attempting to form the right shoulder.  This would put the neckline at 5.72-5.74 and the area which if breached could lead to sharp downside losses.  This area should also act as a level of support until or unless the right shoulder is formed.  It should be noted, however, that H&S patterns haven’t fared very well lately, at least not with corn and soybeans.  Corn and soybeans had potential H&S patterns in November which failed to verify, leading to range bound trade in the latter and an upside breakout in the former.  These patterns shouldn’t be taken as gospel, but rather recognized for what they are and dealt with accordingly.  Where prices are relative to the neckline in wheat on January 12th could tell us more than anything.

Really nothing earth-shattering on yesterday’s COT data, with funds selling a little bit of corn and wheat while buying a small dab of soybeans.  Wouldn’t imagine those positions see any big swings until post-Jan 12.  Worth noting, however, the aggregate Index fund net long across C,S,W,KW,BO,SM,LH,LC,FC,CT,SB,KC,CC totaled 1,348,301 contracts as of 12/30 which is the smallest net long since December 13th, 2011.  While some of those individual commodities enjoyed very nice returns for 2014, namely Feeder Cattle and Coffee, commodities as a whole enjoyed their third losing year in a row, thanks in large part to energies and precious metals.  Long-only investment vehicles have become a very difficult sale the last three years as the “hedge against inflation” and “diversification piece” arguments just haven’t shown up in annual returns.  2015 could be another tough year when the Federal Reserve begins raising interest rates and until energies find a bottom.

Quickly on export inspections data from yesterday, corn shipments came in at 21.2mbu, well below the range of estimates and the level needed to hit the USDA’s export forecast.  The only thing corn has going for it in this department is the fact that new sales have been relatively strong, allowing more time for shipments to catch up.  Cumulative exports of 478mbu are up roughly 1% from a year ago while the USDA is calling for a 9% decline y/y.  Soybean shipments were again solid at 51.7mbu, below last week but well above the 17.3mbu needed weekly to hit the USDA target.  Many continue to call for the USDA to reduce their export forecast on ideas of huge SAM supplies.  Until the sales or shipments out of the US stop, it is difficult to make that call.  Wheat shipments were soft at 13.0mbu, although up from last week’s 8.9mbu, but well below the 18.5mbu needed weekly.  Wheat has the most concerning program in terms of a reduction from the USDA on January 12th.

 

Bottom Line: Prices look as though they want to be stronger once again today, and hard to argue with provided well established ranges aren’t violated.  China is showing interest in US wheat, US DDGs, and continues to buy US soybeans.  All are supportive features, and until the export program for oilseeds more definitively shifts to South America, soybeans have to maintain some measure of risk premium.  Still nothing to get excited about in the way of cash markets, which continues to undermine our markets.  Farmers still have plenty of grain to throw at this rally heading into the 12th.

 

Good Luck Today.

SAM Topsoil 1-6

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.

 

12/31/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index down 0.0690 at 89.9210; Euro down 0.00040 at 1.21580; The Russian Ruble is off 4.15% to 58.7206; S&P’s are up 3.00 at 2079.50; Dow futures are up 13.00 at 17,954.00; 10-yr futures are up 0.16%; The Nikkei closed down 1.57% at 17,450.77; The DAX is down 1.22% at 9,805.55; The IBEX-35 is down 0.03% at 10,276.00; Gold is down $2.00 at $1198.40; Copper is down $1.65 at $283.75; Crude Oil is down $0.95 at $53.18; Heating Oil is down $0.0342 at $1.8074; Paris Milling Wheat is down €0.75/MT at €199.50/MT.

Mixed equity markets around the globe as investors get set to shut the books on 2014.  The chart below from Bloomberg shows the best and worst performers of a handful of assets, but most notably highlights the drubbing oil took as it put forth the worst y/y change since 2008’s economic collapse.  10-yr Treasury yields also rose 28% throughout 2014 as the market anticipates rate increases by the Federal Reserve in mid-2015.  Keeping a foot on oil in recent days has been the Obama Administration’s decision to allow exports of ultralight crude oil, known as condensate, which could mean as much as a million barrels of exports by the end of 2015 according to Citigroup.  Current export capacity is around 200,000 barrels a day, which could be expanded to 500,000 by mid-2015, said the bank.  If the American people truly want cheaper gas prices, they have to be cheaper for everyone.

Blank Midwest radar as the cold snap looks set to cease later today, at least briefly anyway.  A good shot of moisture will move into E-TX and the Delta later today and dump rain the next 3-days before it pushes east and north bringing a fairly wide band of moisture to the ECB and New England.  Temps will rise into the 20-30’s in the Northern Plains today through Friday before cooling back off Sunday-Tuesday.  Extended maps from NOAA show a below normal temp bias, but an above normal precip bias for the Northern Plains in the 6-10, but the above normal precip expanding to encompass the ECB and mid-South by the 8-14.

 

Softer Ag prices as we get set to tie a bow on 2014, but for all the fanfare, grains are going to close very near the levels at which they started the year.  Going into today, wheat is down 0.7% for the year, corn is down 3.9% while soybeans fared a bit worse, off -19.4% for the calendar year.  The process of re-building our drought-depleted supplies from 2012/13 has been a slow one, but carryouts are comfortable on paper and could balloon further in 2015/16 is normal weather is achieved.  As we saw with 2014, however, plenty of marketing opportunities exist throughout a calendar year, and taking advantage of the volatility can mean the difference between two identical operations.  The early themes for 2015 will be Russian wheat exports, with a special focus on their 2015/16 production prospects;  Final 2014/15 corn and soybean yields, along with the pace of usage for corn-feed demand and the degree to which US soybean exports slow February forward; The corn/soybean acreage mix both after the Feb insurance pricing period and April weather.  Bringing funds back to our markets after a disappointing 2014 will also be key, especially as the chart below shows the overall performance of the commodity sector.

CIF NOLA soybean premiums continue to trade weakly, off around 2-3c on the week and off 8c over the last 10-days.  Jan/Feb could be called +73/75F vs. +84F 10-days ago.  What’s dropped faster, however, has been barge freight, which has actually propped Zone 3 cash at or slightly above gross delivery equivalence for January-February.  Given the aforementioned, caution should be exercised for anyone still dealing with the SF/SH spread, or SF shorts outright.  SF/SH has surged from -9.00c on the 18th to -4.75c last trade this morning as it responds to the river basis.  More generally for the rest of the curve,  softening cash, but softer barge freight isn’t a sign of robust demand pull on the river, and given the sloppiness of both PNW bean premiums and rail freight, that program doesn’t look to be adding additional business either.  PNW spot shuttles are indicated around +78H through January vs. +110F for Dec and +105F for FH-Jan on the 18th.  While the SF/SH may be worth watching, the rest of the curve should stay weak at these sort of premiums.

While still on the basis discussion, also worth noting the effect weaker barge freight is having on SRW cash as premiums finally bottomed out around +85H through May-15.  Cash on the Lower-OH River has nosed higher from 24-27c above gross delivery equivalence for January and 27-30c for March to 25-28c above for January and 31-34c for March.  The Upper-OH has witnessed a similar firming with January now 16-19c above gross DVE while March slots are now 23-26c above.  The WH/WK has finally bottomed out with -4.25c trade on the bottom end vs. recent highs at +0.75c on 12/18.  WK/WN is still in a downtrend.  MPLS/CGO inter-market wheat spreads have been enjoying a steady rally since the 18th as well, bottoming out at +3.25c and trading at +28.50c this morning.  The ultimate floor for that spread should be par as MPLS is deliverable against Chicago, and when trade dipped a toe in the water inside 5c, the buy signals should have been blinking.  Seasonally, hard wheats also enjoy strength over Chicago, but KC has yet to exhibit the same recovery relative to Chicago that Minneapolis has.  W/C back inside +200.00c, and KW/C well off +270.00c resistance which has capped the market going back to Aug.

No big changes to CME deliverable stocks with SRW total wheat stocks down around 1.0% vs. a week ago, but still up 17% from a year ago.  Deliverable grades of SRW remain well below a year ago, off 14.90%, while non-deliverable grades are up 414% from one year ago.  HRW stocks declined about 2.5% on the week to 50.416mbu, and remain well off a year ago at 71.059mbu.  MPLS wheat has begun to see its seasonal stocks rise as the Great Lakes close for the season with stocks in Duluth up 490,000 bushels on the week to 15.436mbu, but off from a year ago at 16.877mbu.

Yesterday also saw the most recent COT data released for the period ended 12/23.  Corn continues its recent trend with specs adding to their net long position by reducing shorts.  The large spec net long is now 193,516 contracts, up 11,878 on the week, while the gross short position fell around 13,000 contracts on the week.  Rallies build on short-covering alone can’t last.  Farmers continued to sell corn with the gross commercial short rising to 782,478 contracts, the largest since May 20th.  No big changes to soybeans with funds maintaining a small net short of 4,766 contracts.  KC wheat saw funds buy 7,111 contracts on the week to push their net long to 6,105 contracts, the largest since 7/1/2014.  Farmers keep selling the wheat to the funds with the gross commercial now the largest since June.  Small net buying in Chicago wheat by the funds as they maintain a -12,702 contract net short.

 

Bottom Line: Traders will be watching weekly ethanol production this morning to see if the run to record production can be sustained given ethanol trading to a premium over gasoline, and the softest at-the-pump prices in months.  Production margins have softened for ethanol and hogs with those profits now below year ago levels.  Cash is soft for all of our major grains as farmers sold bushels for year-end purposes.  The system feels full right now, and the funds so far have indicated they only want to short-cover until more inputs are available.  Corn exports are picking up, however, and their arrival hasn’t been a minute too soon.  Expect more chop today and Friday before desks get re-stocked next week.

 

Good Luck Today, and Have a Happy New Year from everyone at Halo Commodities!

 

Bloomberg Asset Performance 12-31

 

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.

12/30/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:40am: Dollar Index down 0.17560 at 90.0030; Euro up 0.00030 at 1.21670; Aussie Dollar up 0.47% at 0.81220; Russian Ruble is up 2.90% at 56.8002; S&P’s are down 3.00 at 2082.75; Dow futures are down 11.00 at 17,971.00; 10-yr futures are up 0.11%; The Nikkei closed down 1.57% at 17,450.77; The DAX is down 0.77% at 9,850.90; The IBEX-35 is down 1.09% at 10,280.50; The ASE (Greece) is down 0.26% at 817.64; Gold is up $4.00 at $1185.90; Copper is up $2.00 at $284.20; Crude Oil is down $0.31 at $53.27; Heating Oil is up $0.0071 at $1.8287; Paris Milling Wheat is down €0.50 at €199.50/MT.

European equities are clearly leading the slide lower on renewed concerns surrounding the Greek debt saga.  The concern continues to be that the leftist Syria party will win the Jan 25 elections, which pollsters give a better than 50% chance of happening, at which time they will demand better terms on the Eurozone bailout negotiations and they will move to ease austerity measures.  Debt markets are not overly concerned about the aforementioned as well as an eventual Greek exit from the Eurozone, however, as yields on peripheral 10-yr debt such as Italy, Spain and Portugal rose only modestly yesterday, a signal investors aren’t anxious about contagion spreading.  The US Dollar Index pushed to a fresh 8-3/4 year high of 90.3250 overnight before reversing.  Commodity exporters and emerging markets should continue to benefit from the Dollar strength in early 2015.

A bit of light snow moving across KS this morning, otherwise quiet across the heartland.  One more morning of intense cold before a respite heading into the weekend, although NOAA maps intend to keep temperatures below normal through the first week of January.  Temps will slowly moderate and warm by the middle of January, but nothing above normal is seen.  Precip begins turning up the next 7-days for the mid-south and Delta with more rains likely.  The central/west corn belt and Northern Plains will remain mostly dry the next 7-days.  Extended maps from NOAA remain above normal for most of the Midwest, and especially the US-SE.

A few private forecasters have expressed concern in Brazil over slowly growing dryness in Goais and Bahia in NE-Brazil, the same provinces which saw dryness in November.  The dryness isn’t extreme, but current moisture levels will have a difficult time keeping up with evaporation the next 7-days.  In S-Brazil, some localized flooding is raising concern, especially if the 2.00-7.00” rains verify as forecast during the next week.  The reporting stations in the province of Rio Grande du Sol have received 165-296% of normal precip during the month of December.  Neither issue seems to be a game changer at this point, but more a couple things to keep track of as we enter the yield determining month of January.

 

A bit of back and fill this morning as wheat is lower by about the same amount as it closed higher yesterday, while corn and soybeans continue to trade inside the last 3-day’s range.  As mentioned yesterday, it is quite conceivable grains have set up trading ranges in which they intend to trade through year end and for much of the new year until the January WASDE.  Data sets out this week so far have included last week’s export sales and inspections, which have held serve and don’t represent anything bullish or bearish enough to push us out of our ranges.  COT data will be released after the close today, and will be important to gauge whether funds are still adding to corn longs, if they have decided to take a directional position in soybeans and if their short position in wheat has been covered.  Corn basis remains weak as end users watch their products fall or hold steady while corn has rallied, contributing to weaker margins.  South American weather is nearly ideal with just a few trouble spots, and wheat should remain defensive in the near term as Russia looks to shove as much grain out the door prior to February 1 as possible.

Some housekeeping to get out of the way first in regards to export sales and export inspections from yesterday.  Corn sales for the week ended 12/18 totaled 67.1mbu, easily the second highest sales total of the marketing year, and the largest since early October.  This would compare with the 21.4mbu needed weekly to hit the USDA’s marketing year estimate, and pushes total commitments to 1.028bbu vs. 1.098bbu at this time last year.  The USDA is currently calling for an 8.7% decline in corn exports y/y, but as of this last week, sales are just 6.4% behind a year ago.  Some sizable buying showed up in the Unknown Destinations category with sales their totaling 452,100MT, and only 126,000MT of that total was reported via the daily reporting system.  Mexico and Japan also emerged as big buyers on the week.  Despite the strong week of sales, the needle really isn’t moving on the basis front for either the Gulf or PNW.  Bids for PNW corn shuttles going home last night were indicated at +75/80/83H for JFM vs. +82/86/88H a week ago.  Bids at the Gulf also remain depressed at +50/55H give or take for Dec/Jan.  The lack of PNW demand pull is being witnessed easily in the rail freight market with spot BNSF equipment bid down to -$1000/car  vs. -$500/car a week ago.  Brokers claim cancellations will begin occurring should values remain at these values.  Depressed crude oil prices and wary Asian buyers after last year’s Northern Plains corn quality will lead to plentiful freight.

Wheat export sales were ho-hum at 10.8mbu, the lowest in 3-weeks, and just below the 11.5mbu needed weekly to hit the USDA’s export forecast.  Sales are now down 25% from a year ago at 666.7mbu.  HRS led sales with 6.4mbu followed by White Wheat at 2.4mbu.  Soybean sales continued their seasonal decline at 23.4mbu vs. 25.6mbu but still well above the 7.5mbu needed weekly to hit the USDA forecast.  Total commitments now stand at 1.535bbu, up 5% from a year ago.  Meal sales were strong at 206,700MT vs. the 111,500MT needed weekly.  Total commitments have begun rising relative to a year ago after declining earlier this fall 2014/15 now 19% above a year ago.  Bean oil sales were weak at 3,900MT vs. the 13,800MT needed weekly.  New crop soybean sales were notably large at 55.2mbu, although 55.0mbu of the total was China, and could be related to their frame contract purchase.

On the inspections side, nothing remarkable to report for corn or wheat, with both missing the needed level of shipments badly.  In fact, corn hasn’t hit the needed level of shipments on a weekly basis since the second week of October.  While sales have improved, the elevation capacity is obviously still being garnished by soybeans.  An improvement in shipments will be needed to defend both the sales total, and the USDA marketing year forecast.  Soybean shipments tailed off from last week to 52.3mbu from 83.1mbu, but were well ahead of the 18.4mbu needed weekly to hit the shipment forecast.  Total shipments of 1.077bbu are up 24.4% from a year ago and account for 61.1% of the expected sales total on the year.  Sorghum shipments also remain very strong, rising above the needed level of exports for the 7th week in a row with shipments up 178% from a year ago.  Thanks China.

As a follow up to the acreage report published last night, I believe the market is slowly waking up to the fact it has its acreage assumptions wrong.  Whether or not the US farmer wants to plant 88.0 million acres of soybeans, the market doesn’t need 88.0 million acres of soybeans, but probably should have a bit more corn as a yield buffer.  If an 88.0 million acre estimate is plugged into the balance sheet, with a trend-line yield of around 45.5bpa, and assuming a 1-2% demand increase, 15/16 soybean carryout balloons to over 700mbu, and a stocks/use ratio of over 19.0%.  On the other hand, if corn acreage of 88.0 million is used with a trend-line yield of 165-167bpa, and demand is increased 1-2%, carryout declines in 15/16 by around 400-500mbu.  This would leave us with a stocks/use ratio of just over 12.0%.  If a 5-year Olympic average (throw out the high and the low) is used, we get a corn yield of 155.48bpa.  If this kind of yield is achieved with 88.0 million acres, corn carryout goes plunging through 1.00bbu.  The point here is even with 2.0 million less soybean acres, the bean balance sheet has room to give while corn with any yield adversity does not.  This could help support CZ15 corn well into Q12015.

 

Bottom Line:  Back and fill trade inside of recent ranges as markets don’t seem as though they want to break new ground ahead of the First of the Year.  The ramp up to the January WASDE will begin soon enough, but given the weak cash markets and declining end user margins, corn looks as though the path of least resistance is down.  Wheat will struggle as long as Russia continues exporting grain and the US misses business, and soybeans will eventually have to reconcile growing stocks with favorable SAM weather.  No reason to be a hero today.

 

Good Luck Today.

 

SAM Weather 12-30

 

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.

 

 

2015 Planted Acreage Ideas

On December 19th, Informa Economics released their latest estimate of 2015 corn and soybean planted acreage, basing their numbers on survey results and current economic projections.  On December 18th, the USDA released their updated Long-Term Baseline estimates which included corn and soybean acreage.  Interestingly enough, both sets of numbers lined up reasonably well for the 2015/16 crop year.  At issue is the current belief soybean acreage will come in as high as what some private analysts are estimating, especially considering the change in corn/soybean economics as of late based off the 2015 corn/soybean ratio.  Further, the large jump in soybean planted acreage from the 2013/14 to the 2014/15 marketing year should serve as pause given a similar jump in acreage is being forecast this year when history would suggest otherwise.  The current 2015/16 soybean planted acreage estimate of 88.0-88.9 million acres being used in balance sheets looks too high based on recent history and current economic projections.

While not trying to single out Informa Economics, I will be using their estimates as a base as they’re projections contain a much higher level of detail than other numbers being posited.  Informa is using a planted acreage estimate for 2015/16 of 88.780 million acres of soybeans which would be up 5.5% over 2014/15.  Their current corn planted acreage estimate of 88.010 million would be down 3.2% from 2014/15, assuming no major changes are in store for either commodity on the January WASDE report.  The total acreage pie Informa is currently using is down around 1.2 million acres from 2014/15 based on a lower-price environment contributing to a bit of marginal acreage returning to marginal status.  Soybean planted acreage at that level would clearly be the highest on record while corn planted acreage would be the smallest since 2010/11.  When breaking down the state-by-state comparison to a year ago, a few interesting observations become apparent.

Informa is projecting North Dakota soybean acreage at 6.4 million, which would be up 8% from a year ago, and up 37% from 13/14.  South Dakota is being forecast up 3% from a year ago at 5.3 million acres, and up 15% from 13/14.  Minnesota is pegged at 8.05 million acres, up 10% y/y and up 20% from 13/14. Illinois is seen at 10.5 million acres, up 6% y/y and up 10% from 13/14, while Iowa is estimated at 10.3 million planted acres, up 4% from a year ago and up 10% from 13/14.  In total these states are responsible for an additional 2.25 million acres of soybeans vs. last year and 5.8 million acres over 2013/14.  There are no large scale changes in the Delta or Mid-South other than Mississippi up 280,000 acres from a year ago and 500,000 acres from 2013/14.  One might find themselves asking why the focus on acreage vs. 2013/14 instead of just 2014/15?  Valid.  The reason for the focus by this analyst is it is important to note the percentage change between 2013/14 and 2014/15 which speaks to the ability of the US farmer to make another large scale bump in acres again this next spring.  Also, it is important to realize the difference between one acre of soybeans in North Dakota and one acre of soybeans in Iowa.  North Dakota farms, in general, rely on a much more diversified rotation than do farms in key Corn Belt states due to the specific soil types present in both states.  As a rule of thumb, there is a much lower incidence of continuous corn/soybean acres or even corn on corn and soybean on soybean acres in North Dakota than in the “I” states.  Considering the aforementioned estimate is calling for a 37% jump in soybean acres over the last two years for the state of North Dakota, it would seem analysts are overlooking the ability for farmers in the upper-Midwest to ignore agronomic considerations such as soil type, fertilizer requirements, tillage practices and pest pressure.

Soybean Planted Acreage 12-29

In 2013/14 there were 76.840 million acres of soybeans planted in the US which compares with the 76.787 million acres representing the most recent 5-year average.  Should 88 million acres of soybeans be planted in 2015/16, it would represent a 15.6% jump from the 5-year average.  Taking a quick glance over at corn, which saw a similar demand for acreage in recent history, shows us the capacity of the US farmer to respond to price incentives.  In 2012 when US farmers planted 97.291 million acres of corn, that amounted to a 9.0% jump from the most recent 5-year average corn planted acreage.  In December of 2011, the November ‘12/December ’12 soybean/corn ratio traded down to a low of 2.05 and a high of 2.10 which would compare with the November ‘15/December ’15 soybean corn ratio at 2.36 after having traded to a high of 2.43 and recent low of 2.31.  Granted, the November ‘12/December ’12 soybean corn ratio traded to a high of 2.68 by mid-May, but at the end of the key crop-insurance pricing period in February the ratio read 2.27, which was still in favor of corn.  A monthly analysis of the front-month soybean/corn ratio going back to 1996 shows long-run averages for this ratio sit around 2.36-2.43.  In 2012 when corn saw a push to record acreage, the soybean/corn ratio was sitting 14% below the long-run average of 2.40 in December, and 6.5% below at the end of February.  For soybeans to command a 14% advantage over corn via the 2015 soybean/corn ratio, a number closer to 2.73 would be needed vs. the current ratio at 2.36.  A 6.5% advantage over the long-run average of 2.40 would put the ratio around 2.556.  It would not appear soybeans are expressing the demand for a 15% jump in acres vs. the 5-year average, or even a 5.5% jump vs. last year when compared with the job corn did when it rose 9.0% from its 5-year average and 5.8% from the previous year’s planted acreage.

 

2012 Soybean/Corn Ratio

2012 Corn-Soy Ratio 12-29

Another wrinkle which needs to be discussed is the role of double crop acreage as it relates to potential soybean plantings.  Prime double crop acreage states such as Arkansas, Tennessee, Indiana, Kentucky, Missouri and Illinois are all expected to see SRW acreage decline vs. 2014/15.  In total, private estimates are already estimating SRW acreage to be down in the aforementioned states by 305,000 acres, and could end up being more given the difficult soybean harvest which strung out longer than usual in many of these ECB states.  This isn’t to say these states couldn’t opt to plant full season soybeans as opposed to soybeans following winter wheat, but dedicated SRW acreage doesn’t usually compete with corn on an economic front as the cost of the winter wheat planted is already sunk.  Therefore, full season soybeans have to compete directly with corn for desired acreage whereas double crop soybeans don’t have to compete head-to-head, reserving their place in the total soybean acreage pie.

In sum, it would not appear soybeans are showing the immediacy for a change in planted acreage for the 2015/16 marketing year the way some private analysts are suggesting.  The investment in planting technology, storage and drying capacity have been driven because of corn, not soybeans.  Given those investments in corn infrastructure, it would also seem to argue against farmers continuing to go away from corn in favor of soybeans, especially if current economics don’t paint the issue as solidly black and white.  An increase of 2.0 million planted acres to 86.0 million soybean acres would represent a 12.9% jump from the 5-year average and an increase of 3.0% from 2014/15, a much more realistic assessment.  At the time of this writing, a planted acreage estimate of 86.0 million soybean acres, and 90.0 million corn acres, seem much more appropriate until additional inputs can be added following the January WASDE report.

 

Tregg Cronin

Market Analyst

Halo Commodities

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. 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.

 

 

12/29/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:20am: Dollar Index down 0.0550 at 89.9730; Euro up 0.00250 at 1.22100; Russian Ruble is off 4.08% at 59.17159; S&P’s are down 3.25 at 2081.25; Dow futures are down 30.00 at 17,982.00; 10-yr futures are up 0.20%; The Nikkei closed down 0.50% at 17,729.84; The DAX is down 0.67% at 9,855.72; The IBEX-35 is down 1.62% at 10,311.70; Gold is down $2.20 at $1193.10; Copper is down $0.20 at $281.20; Crude Oil is up $0.66 at $55.39; Heating Oil is up $0.0193 at $1.9035; Paris Milling Wheat is up €0.50 at €201.50/MT.

Greece is once again grabbing financial headlines this morning after the Greek Prime Minister announced plans for an early general election next month after parliament rejected his candidate for president, throwing the country’s international bailout into question.  Recent opinion polls point to a victory for the radical leftist Syriza party, which wants to wipe out a big part of Greece’s debt, and cancel the terms of the bailout with the European Union and IMF.  Also making headlines this morning was the Russian Ruble heading back towards 60:1 with the US Dollar Index after the economy began shrinking in November for the first time since 2009.  The Russian Economic Development Ministry reported the economy shrank by 0.5% in November compared with a year earlier, and also the Central Bank’s foreign reserves dropped below $400 billion for the first time since August of 2009.  The US Dollar Index is holding right under fresh 8-year highs set on December 23rd.

Patchy snow moving across NE, IA and SD this morning, but otherwise the Midwest is fairly quiet.  The focus this week will be the plunge in temperatures with the freeze line extending all the way to the border of Mexico the next 3-4 days before moderating slightly.  The obvious concern will be the amount and location of snow cover.  The map below from NOAA shows snow cover as of this morning with portions of HRW and SRW country exposed to the looming cold snap.  The next map shows the expected minimum temperature for New Year’s Eve Wednesday.  On the international front, drier weather will move into N-Brazil the next 7-days, but soil moisture is plentiful after a beneficial December.  Southern Argentina is also expected to turn drier over the next week.  Will revert back with soil moisture tables when they are updated later today.

 

Mostly firmer markets led by wheat in our last trading week of 2014.  Plenty of Russian chatter on the tape this morning, and the aforementioned forecast for US wheat areas will also keep traders anxious despite the fact damage or lack thereof won’t be known until March.  Traders are also going to be using the remaining 3-days of 2014 to square positions, which as of the last COT data put funds still short a bit of wheat, long corn and flat soybeans.  According to financial website FinViz.com, the best performing commodity of 2014 was Coffee which is up 52.3% on the year, followed by feeder and live cattle, up 29.0% and 22.3%, respectively.  Crude Oil was obviously the worst performing commodity, down 43.6% on the year.  Chicago Wheat is currently up 1.9% on the year, corn down -1.8% and soybeans off 18.2%.  The performance of these commodities need to be kept in mind in regards to possible sector rotation of managed funds as well as fund rebalancing by passive long instruments.

Beginning first with Russia, the economic new mentioned above is obviously providing the backdrop for a country which is already seeing economic activity shrink compared with a year ago, something which wasn’t expected to happen until 2015.  This mentality makes the need for additional tax revenue, and a slowing of domestic inflation, all the more pertinent which they announced late last week.  Russia intends to add a duty on grain exports beginning February 1 to June 30 which will be 15% of the price per tonne, plus €7.5/MT, with a minimum rate of €35/MT.  According to the Deptuy Prime Minister of Ag, farmers were currently receiving around €225/MT selling to the export market and €160/MT selling into the domestic market, which creates a spread larger than the proposed €41.25/MT levy, although transportation costs of any kind are not being reflected.  Either way, Russia is still participating in international tenders with the intention of shipping more grain before February 1.  On Thursday Egypt’s GASC said it will receive 120,000MT of Russian wheat for the shipping period January 21-31.

Even with slowed grain exports Feb 1 forward, Russia still looks set to export a sizable amount for 2014/15.  Through December 28th, Russia has exported 20.4MMT of grain, up 30.1% from a year earlier.  Of that amount, 15.97MMT was estimated to be wheat, 3.1MMT of barley and 1.07MMT of corn.  The USDA is currently using 22MMT of wheat exports for Russia in their balance sheets, with most analysts trimming that total by 2-3MMT due to expected measures to slow export flows.  It is important to remember the combined supply of Ukraine and the EU-27 is around 16-17MMT larger than a year ago, supply which will make filling the short-fall in Russian trade easily met.  US wheat remains more expensive than either of the two previously mentioned origins, despite the basis weakness witnessed the past 10-days.

The most recent COT data will be released Tuesday afternoon, but a few observations from last week’s data which covered the week ended 12/16 are worth sharing.  First off, the buying by funds continues to be all short-covering, not fresh buying.  The net long position held by managed funds totaled +181,683 contracts, the largest since 5/13/14.  While building that net long position, however, the fund gross short position has dropped to the lowest level since mid-May while the gross long has held relatively steady.  In wheat, producers sold copious amounts of both HRW and SRW according to COT data with the gross commercial short position rising to -72,293 contracts of HRW, the largest since 7/1/2014.  In the case of SRW, the gross commercial short is now -199,685 contracts, the largest since February 5th, 2013.  End users on the other hand, have kept their positions stable while funds continue to cover shorts.  The point of the aforementioned is to highlight the fact commercials are selling to the funds which are simply covering existing short positions of both wheat and corn.  Sustainable bull markets can’t be fed short-covering forever.  In the FWIW category, funds have moved to a record net short position in sugar, while commercials now retain the smallest net short on record.  Sugar prices remain in a long-term downtrend, but are still above lows witnessed in mid-September which were the lowest prices since May 2010.

Just a brief note on corn end user margins with the most recent leg of the rally.  Margins ,as estimated by www.rjomrt.com, declined notably for ethanol, broilers and hogs last week, while cattle futures jumped due to the feeder/live spread.  Importantly, ethanol margins declined to $1.12/gln vs. $1.34/gln last week and $1.43/gln last year.  Broiler margins were estimated at 75.18c/lb vs. 77.27c/lb last week and 71.44c/lb last year.  Hog crush was calculated at $94.54/hd vs. $101.44/hd last week and $98.94/hd a year ago.  Cattle margins were pegged at $40.81/hd vs. -$6.51/hd last week but $132.44/hd last year.  The decline in margins by 3 of the 4 major end users of corn, with cattle still sharply negative, is cause for concern, especially when ethanol, hogs and cattle have now slipped below a year ago.  This should be a factor in basis and futures positions moving into 2015.

 

Bottom line: Despite a fair amount of news on the tape, volumes should remain depressed as we close out 2015, and prices reverting to range bound trade.  Cash basis is weak for both corn and wheat, signaling the US farmer has done a good job of moving length to the funds on the rallies, and highlighting how full the system is with grain.  The ramp up to the January 12th WASDE repors will begin shortly, and a pick up in volatility is sure to emerge as desks become more fully stocked after the New Year Holiday.

 

Good Luck Today.

 

Snow Cover 12-29 Min Temp 12-29

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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