Outside Markets as of 6:10am: Dollar Index up 0.0620 at 85.2570; Euro down 0.00080 at 1.27470; The Russian Ruble is weaker by 1.10% to 38.6922; S&P’s are up 2.50 at 1964.00; Dow futures are up 30.00 at 16,930.00; 10-yr futures are up 0.04%; The Nikkei closed down 0.88% at 16,229.86; The DAX is up 0.08% at 9,517.47; the IBEX-35 is up 0.61% at 10,848.90; Gold is up $1.90 at $223.80; Copper is up $1.85 at $304.85; Crude Oil is up $0.44 at $92.97; Heating Oil is up $0.0071 at $2.7063; Paris Milling Wheat is down €1.00 at €149.75/MT.
Mixed global equity markets to close the week as investors remain especially nervous about the performance of stocks this week. More salient in my opinion, however, has been the currency moves this week with the Dollar Index working on its 11th consecutive weekly rise, something not achieved in four decades according to Reuters. Emerging market currencies joined in the global currency sell off yesterday with the Brazilian Real trading up 1.31% to 2.4254, the highest level since February, while the Russian Ruble trades up 1.10% this morning to 38.6922, just off the weakest level on record. In addition, the Aussie Dollar, while steady this morning, fell 1.05% against the Dollar to the lowest level since February 4th, with the Canadian Dollar at the weakest levels against the Dollar since March. The underlying markets which comprise the global economy aren’t giving off the rosiest signals. The negative effect on commodities is palpable, and until we see a turn in some of the aforementioned, hard to believe the negative money flow towards our markets is going to subside. Today will see another revision to Q2-GDP which is expected to be bumped to +4.6% from +4.2% previously.
Blank radar over the Midwest again this morning as early harvest efforts roll on. Dry weather will continue the next 3-days across the Midwest before storms brewing up on the East side of the Rockies finally push into MT/WY/ND/SD/NE over the weekend. As of this morning’s latest update, the Dakotas and W-NE should be impacted Monday-Tuesday with heaviest totals in SW-ND/NW-SD with up to 1.75” forecast. Most of the Dakotas could see up to 0.50”. The storm will expand by the middle of next week to bring rain to IA/KS/OK/MO/WI with a broad 0.50” with heavier localized amounts. Still looking for a cool down in the extended maps with the 6-10 and 8-14 day below showing much below normal temps over the Rockies, while the ECB receives above normal temps. The cool down occurs for everyone by the 8-14, and after some above normal precip, dryness takes hold late in the period.
Mixed to weaker markets to close out another soft week for Ag markets with corn down 5c on the week, soybeans off 39c and December Chicago wheat off just 2c. US wheat markets aren’t the only ones under pressure with Paris Milling Wheat off €4.00/MT on the week following back to back €9.00/MT losses. Paris has actually been dropping faster than US markets, possibly in response to the US winning GASC business earlier this week. At any rate, the front-month spread between Paris Milling Wheat and Chicago Soft Wheat is now just $16.86/MT, the narrowest spread since October 15th, 2013. Minneapolis and KC are seeing similar declines. Even the spread between Paris Corn and US corn has narrowed significantly over the last several weeks with the spread now at $43.30/MT, near the lowest levels since September 2013. In the US, the focus continues to be on anecdotal yield reports which are blowing the roof off old records, record high freight markets which are crushing the FOB bid to the farmer, and trying to gauge the interest of the end user with the lowest flat prices in four years.
Beginning first with the freight markets, cash traders noted barge freight on several river segments pushing to 1000% yesterday which would be a new all-time record. Usually, if the demand for freight is that strong, the demand for the product on the freight is that strong, and premiums keep pace with strengthening freight. This isn’t the case today with soybeans and corn. In fact, soybean premiums have been getting weaker along with barge freight getting strong, pushing FOB bids down and delivery calculations sharply below gross delivery equivalence. Using 1000% barge freight and CIF soybean premiums of +120X, Zone 3 is calculating around 46c below gross DVE. Not bullish. With 1000% barge freight and CIF corn premiums of +86Z, Zone 3 calculates 64c below gross DVE. Not bullish. Based simply on delivery math, interior elevators with current freight and current bids have a 23c incentive to sit on soybeans until FH-November, and a 38c incentive on corn to sit until December. Obviously with sales on the books, it isn’t feasible to sit on grain that long, especially as the farmer tries to deliver. This means something is going to have to change, likely in the way of firmer premiums to move grain.
The situation off the PNW isn’t much better, or possibly worse, with secondary BNSF freight now fetching $4500-5000/car. Corn premiums were unchanged on Thursday at +145/145/140Z for SON, while soybean premiums were firmer to +230/220/205X for SON. By the time an elevator tacks on $1.15-1.25 in secondary rail costs, on top of flat tariff rates of $1.25-1.50, and a handling margin, the bid to the farmer in the Northern Plains gets awfully crumby. The railroads can try as they may to keep up with demand, but the back-to-back record crops in the Northern Plains along with all of the Bakken traffic is simply too much to handle, especially when you throw winter weather in. The situation is not going to get better, and will probably get much worse as harvest progresses. Attempting to store grain until next spring may be a producers’ best option.
The freight discussion offers a good segue into the LDP/County Loan conversation which was being had in circles yesterday. With corn down yesterday, several counties in North Dakota actually saw their posted cash bids on corn drop below the County Loan rate for the first time in close to a decade. In one spot in particular, Minot, the cash corn bid yesterday at one point was $1.81/bu while the County Loan Rate for 2014 sits at $1.90. There are a lot of wrinkles and facets to this discussion, so treat this as the first in a line of many, but with the county loan option available, farmers aren’t likely to sell grain at current prices when they can meet short-term cash needs via Government loan while waiting to see if prices get better over the next 9-months. Storing the crop while waiting becomes an issue, but aside from ethanol, feed and export, we need to remember there is a fourth demand center when prices get this low: LDP and MAL. For a lot of people, myself included, we’ve never had to go through these exercises, but it’s time to get brushed up as this fall could see the area affected expand from ND to SD and MN.
Bottom Line: Don’t expect too much out of grains today as trade inside recent ranges looks likely to finish out the week. Today’s COT data should show funds adding to shorts in soybeans while possibly adding to length in corn now that prices have slipped inside the $3.25 envelope. Wheat is picking up demand, but will need more than 1-2 boats headed to the Med Basin to clean up a 40% stocks/use. Currencies will continue to affect our markets, and when equities are down 1.4% and the CRB-Index is also down 0.40% like yesterday it really speaks to the weak underlying fundamentals. We haven’t had this well supplied of a grain and energy market at the same time since the 1980’s. It’s time to readjust the goal posts.
Good Luck Today.
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