Outside Markets as of 6:10am: Dollar Index up 0.2480 at 84.5710; The Euro down 0.00490 at 1.28750; The British Pound is up 0.07% at 1.6374; The Japanese Yen is up 0.08% at 108.7547; S&P’s are up 5.75 at 2018.00; Dow futures are up 68.00 at 17,328.00; 10-yr futures are up 0.03%; The Nikkei closed up 1.58% at 16,321.17; The DAX is up 0.68% at 9,864.32; The FTSE-100 is up 0.68% at 6,865.72; Gold is down $4.40 at $1222.50; Copper is up $0.20 at $309.60; Crude Oil is down $0.15 at $92.92; Heating Oil is up $0.0037 at $2.7160; Paris Milling Wheat is down €3.25 at €155.75/MT.
The “Yes” voters for the Scottish Independence referendum weren’t quite as successful as William Wallace with the “No” vote to remain in the Union with England receiving 55% of the vote. The challenge to the Union was unprecedented in the 307-year history of the countries, and will surely signal change in representation and economic freedom moving forward. Currencies traded especially erratic through the night as results were released with the British Pound jumping to 1.6515 on news the “No” votes would carry before easing to 1.6372 this morning. The Japanese Yen also grabbed attention when It pushed to 109.4600 last evening, the weakest level against the Dollar since September 2008. Such a weak Yen could hurt purchases of commodities denominated in US Dollars. The CRB-Index could be breaking out below 2-year support with the weakness this morning.
Showers moving across ND and N-MN, otherwise quiet across the Heartland. Spotty shower activity the next 5-7 days with best chances for precip in KD/NE/W-IA where heaviest localized totals early next week look to fall in N-KS to the tune of 1.50-2.00”. Otherwise drier weather ahead, which should aid in early harvest efforts and maturation of the crop in the North. Temperatures look to remain well above normal the next 15-days for the entire Midwest, but precip potential does begin to pickup late in the 6-10 and early in the 8-14 day slot. In fact, above normal precip is being indicated for the Northern Plains September 26th-October 2nd as indicated by the map below. This would aid recently planted HRW, but may impact soybean harvest in some WCB locations. Nothing threatening just yet.
A particularly weak overnight session for wheat and soybeans with all December and November contracts witnessing fresh contract lows while the US farmer slept. Technical selling pressure has remained a feature, and with a breakout to fresh lows on a daily basis, the move has risk of accelerating. December corn continues to defend the $3.35 ¾ contract low from earlier in the week, but will have a difficult time doing so if wheat continues to plunge to new lows. The market seems as though it is pricing in another build in supply, possibly from the Sept. 30th stocks report for wheat and soybeans. It is widely expected the USDA will increase the 2013 soybean crop, which will put upside pressure on 2014 yields. Also, the 2014 HRS crop is likely to receive an upward revision according to anecdotal yield reports from across ND. Hard for demand to step in when supply is still getting larger.
Encouragingly, US corn out of the Gulf is back to the cheapest available stem in the Americas on a FOB basis with spot boats worth $164.66/MT through November. This would compare with Argy at $166.63/MT and Brazil at $171.74/MT. PNW stem is indicated around $190.25/MT, but obviously enjoys a $19.34/MT freight advantage for routes to Asia. Reuters reported yesterday a tow-boat sank near mile marker 104 to 106 near Chester, Illinois, causing the Coast Guard to restrict traffic on the river. The tow boat was carrying around 3,500 gallons of diesel fuel and an unknown amount of lube oil aboard. This should cause barge freight to rise given expanding harvest progress along the river corridor. While two-days old, the USDA on Tuesday said Lower IL-River barge freight was worth 633% of tariff.
Yesterday, prominent EU cereal forecaster Strategie Grains updated their latest production estimates for the EU, increasing corn and wheat production above the USDA’s latest guess by 9MMT. If the firm ends up being a pre-cursor to the USDA, US corn demand by way of exports might need to be revised even lower. The amount of feed wheat, and now corn, available in Europe this year is sharply higher than a year ago and the last several years, reducing the demand for US corn. The USDA just increased corn exports by 25mbu in the latest WASDE report to help account for the 300mbu increase in supply. If the USDA is moving in the wrong direction on demand, but supply continues to increase on futures reports as the market seems to be suggesting, carryout could be getting set to balloon well north of 2.0bbu for 2014/15. The US farmer’s love affair with corn could end up being the source of his heartbreak.
A couple of technical objectives worth pointing out which could offer longer-term support in the soybean market. With fresh contract lows on a daily basis, one has to pan out on weekly charts for support. In drawing some Fibonacci progression levels, one prominent area came in around $9.28, which would be the 100% progression of the $16.36-7.76 selloff in 2008 attached to the all-time record high of $17.89. Essentially, if the selloff in 2008 is any guide, the length of that move from $17.89 lines up around $9.28 which is also a number being thrown around by fundamental and cash traders for harvest lows. Watch momentum signals around that area for clues. The analogous level in soymeal would be $297.50. In looking at weekly Chicago Wheat charts, unfortunately, we continue to slice through long-term support levels like a hot knife through butter. The only downside objective left between spot and the 4-handle are the June 2010 lows around $4.25. Granted, that is 60c from current levels, but there just aren’t any support levels of note between here and there. Wheat charts have done serious technical damage, but fortunately, funds are already short up to their eyeballs.
The latest Cattle on Feed report will be released this afternoon for supplies as of September 1st with placements during August expected to come in at 1.692 million head. If that number turns out to be accurate, placements would be down 4.5% from a year ago, and be the lowest August placements on record going back to 1996. Cattle on feed are expected at 98.9% of last year at 9.767 million head, which would be the lowest since 1999, while marketings are seen at 90.7% of a year ago at 1.697 million. The marketings would also be the lowest since 1996. All of the above bodes well for keeping cattle at all-time record highs, but bodes especially poor for corn demand.
Bottom Line: Favorable yield reports, favorable harvest weather, end users on the sideline and an undersold US farmer are all contributing to fresh contract lows heading into harvest. Technicians, like myself, can throw out downside targets, but until the market sees fresh, meaningful demand, prices are going to continue to drift lower. Storage needs to be maximized to take advantage of any post-harvest rallies, while keeping cash needs close at hand. Tighten up and keep your head down; the ride is going to be bumpy.
Good Luck Today.
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