Outside Markets as of 6:00am: Dollar Index up 0.1320 at 80.5220; Euro down 0.00350 at 1.35360; S&P’s are up 6.50 at 1974.50; Dow futures are up 56.00 at 17,045.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.10% at 15,379.30; The DAX is up 1.29% at 9,845.21; The IBEX-35 is up 1.39% at 10,621.60; Gold is up $1.30 at $1298.40; Copper is down $0.05 at $324.90; Crude Oil is up $0.82 at $100.76; Heating Oil is up $0.0021 at $2.8576; Paris Milling Wheat is up €2.00 at €179.00/MT.
Global equity markets are mostly firmer this morning after a continuation of dovish comments from Fed Chair Janet Yellen in her testimony to Congress, and positive growth data from China. Yellen stuck to the script yesterday when testifying before Congress, saying she intends to keep providing significant support to the US economy to boost growth and improve the labor market. Chinese growth in the second quarter picked up to 7.5% y/y vs. 7.4% growth in the first quarter, suggesting the PRC government’s ‘mini-stimulus’ had helped offset concerns over a housing slowdown. Today will see the June PPI which is expected to ease slightly to 1.9% y/y vs. 2.0% in May. Industrial production for June is also out today and is expected to rise +0.3% m/m which would be a slowdown from May’s report which showed growth of +0.6%.
Scattered precip over the central and southern plains this morning, but quiet across corn and soybean country and that should remain the case the next 3-days. Heavy rainfall totals will occur in the southern plains with totals as high as 5.3” along the OK/TX border by Saturday. This will help recharge soils before the winter wheat planting campaign begins in 60-70 days. The Midwest will remain dry into the weekend before a bit better chances at moisture show up mid-week next week. The Northern Plains will be dry the next week which will help push along wheat maturation. By the end of next week, most soils will need a drink to help ensure favorable conditions for row crops. NOAA extended maps show above normal temperatures showing up in the Dakotas and MN by July 21st, which could impact late headed spring wheat. Moisture looks favorable in the ECB.
Firmer grain markets to begin this Wednesday, with wheat and soybeans stringing together their first multi-session gains in about a week. Soybeans are being supported by the structure of the market which has funds pushing to a new record short position, while the commercials are sitting on the smallest net short on record. In addition, the depressed board prices have halted the movement of soybeans which has supported CIF NOLA soybean basis. Brazilian soybean basis has rallied sharply since the beginning of the month and export business is being pushed back to the US for both old crop and new crop slots. The basis would suggest the negative residual demand the USDA gave us on the July WASDE is going to be used up in short order. Wheat and corn seem to be bouncing from short-covering and bargain buying, although little technically makes these markets look as though a low is in.
Weekly domestic end user margins as compiled by www.rjomrt.com continue to show excellent profitability among users of corn with MN spot gross ethanol margins improving to $1.26/gln vs. $1.17/gln last week and $0.84/gln last year. Continued growth in ethanol exports will be key to ethanol demand for corn growing in 14/15. India is set to vote on raising the required ethanol blending rate to 10% from the current 5% which was implemented in November 2012. However, just an average of 1.4% of blending is being achieved. Poultry margins improved to 92.22c/lb from 89.93c/lb last week and 79.81c/lb last year. Hog crush remains strong at $161.38/hd vs $158.89/hd last week and $86.76/hd last year. Cattle crush improved slightly to $98.44/hd from $91.53/hd but remains well under the $204.65/hd last year. C-IL soy crush margins sit at $1.17/bu vs $0.94/bu last year. Value added margins remain quite strong, but it still hasn’t resulted in end users stepping up to the plate and covering needs, and they probably won’t until the perception is the crop isn’t getting any larger.
NOPA released their June member crush statistics yesterday during the session, pegging June crush at 118.7mbu vs the average estimate of 119.5mbu and down slightly from 2013 at 119.1mbu. June crush activity was right in line with the last two years, but importantly was right where it needed to be to hit the USDA’s updated crush forecast. There remain 232 million bushels left to crush in July and August when adjusting for total US crush, which could/should easily be achieved. Soy oil stocks came in at 1.847 billion pounds vs the average trade guess of 1.895 billion, while production was seen at 1.401 billion pounds and oil yield was at 11.80lbs/bu. June soymeal exports among members were 388,000 short tons, down from 465,000 in May and the lowest monthly total since September 2013.
Updated public opinion data from www.sentimentrader.com continues to show what we already know: depressed public support for grain prices. Corn public opinion slipped to 19.0% which is the lowest since October, 18th, 2004. Yet, despite awful public opinion numbers, farmers and funds remain long the corn market which argues against a major bottom being formed, despite bearish sentiment. Soy public opinion was shown at 39.0%, the lowest since November 15th, 2011. Wheat on the other hand hit the lowest public opinion figure ever at just 13.0% with data going back to 1990. Funds are definitely short the wheat market, and of the three probably has the best support for forming a bottom, but trends are still firmly down. The basket of commodities known as the CRB-Index had public opinion of 45.0%, the lowest since February 4th as crude oil also slipped below $100/bbl yesterday/
One of the big features showing back up in the cash markets is increased rail costs as RR performance slips heading into small grains harvest in the Northern Plains. Cost of cars has rallied back to $2600/car with bids for fall harvest heading near $3500/car. This has caused destination rail corn and soybean basis to rally sharply the last week with PNW corn premiums now shown bid at +145U. New crop soybean basis is also firmer to +190X for September trains. The growing reality is cash basis due to rail road performance is going to get much, much worse for elevators dependent upon rail roads to clear grain. In addition, ethanol plants won’t be able to save the day as trucks pound processor markets, so it would appear we are headed for some historically bad corn and soybean basis levels this fall unless something drastically changes between now and September. Most cash bids for new crop corn in the Northern Plains already have a “2” in front, and it wouldn’t surprise this analyst to see a “1” if board prices don’t bottom between now and new crop.
In a follow up to yesterday’s corn seasonal chart showing 2004 and 2009’s record corn yields and futures prices, I put together a chart showing November soybeans in 2005 and 2009. As one can see from the chart, November soybeans hit their seasonal lows in those two years very close to each other with 2005 coming on September 28th and 2009 coming on October 2nd. Still, with it being only July 16th today, it obviously argues for lower November soybean prices moving forward provided developmental weather in August remains favorable. Of the two, soybeans definitely have more time to impact yield than does corn at this point. So far, we seem to be tracking 2009 a bit better.
Bottom Line: End users of corn continue printing black ink, weather remains mostly ideal for both corn and soybeans, winter wheat harvest is over 2/3’s complete and public support for commodities is waning. Today looks like a small blip in the larger degree downtrend as funds appear invested to the downside and big crops look like they’re getting bigger. Ethanol numbers at 9:30am. Make sure there is a contingency plan for much worse cash basis at harvest if crops continue getting larger.
Good Luck Today.
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