12/4/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:50am: Dollar Index down 0.0370 at 88.9260; Euro up 0.00050 at 1.23160; S&P’s are up 1.75 at 2074.25; Dow futures are up 15.00 at 17,912.00; 10-yr futures are unchanged; The Nikkei closed up 0.94% at 17,887.21; The DAX is up 0.51% at 10,023.72; The IBEX-35 is down 0.02% at 10,873.20; Gold is down $6.90 at $1201.80; Copper is up $2.45 at $289.65; Crude Oil is down $0.53 at $66.85; Heating Oil is down $0.0122 at $2.1212; Paris Milling Wheat is down €2.50 at €184.50/MT.

Tepid global equities overnight as central banks opted to leave benchmark lending rates unchanged and President Putin tries to shift blame from himself to “evil speculators” for his country’s economic woes.  Unemployment claims in the US today are expected to drop 18,000, partially reversing the last three weeks’ rise of 35,000.  Unemployment claims are also 47,000 above the 14-1/2 year low of 266,000 posted in the week of October 10th.  This Friday’s employment report is expected to show a payroll increase of 230,000 after yesterday’s ADP private payroll data showed an increase of 208,000 which was slightly below expectations at 225,000.

 

As quickly as wheat seemed to rally, it appears set on giving it back.  Following two-day gains of 43c, March Chicago wheat has now fallen 26c and is on pace for its third straight losing session in a row.  Since the market got excited about potential export restrictions out of Russia, a lot has happened in the wheat markets.  In no particular order, Russia offered wheat in the recent GASC tender, even though they were not awarded the winning business.  LDC delivered 600 contracts against the KWZ, blowing the KWZ/KWH spread out to  -12.25c in the process.  The US and Australian wheat farmer leaned in hard to the rally with fresh sales as evidenced by sharply weaker Aussie basis and softer US domestic markets.  After covering the vast majority of their short position, it would appear managed funds have also filled their bellies with longs at the same time index funds are piling out of commodities due poor YTD performance.  All of the aforementioned helped cap the wheat market, and may relegate us to range bound trade moving forward.  Soybeans breached the $10.00 area, although recovered decently in the last 18-hours.  Corn looks fine as long as it defends the $3.75 area basis March futures.

In the GASC tender announced yesterday, Egypt bought 175,000MT of wheat from Romania and Ukraine for Jan 1-10 shipment.  Average price was $271.24/MT C&F.  120,000MT came from Romania at $260.17/MT FOB and 55,000MT from Ukraine at $257.50/MT FOB.  Russian wheat was offered at $264-264.57/MT FOB, which was the highest European/Black Sea offer, but was still sharply below the lone US offer at $286.55/MT.  The US wheat was 71c/bu above the winning offer, and 41c/bu above the Russian offer.  So despite firm domestic, and even export basis, US wheat continues to lose out on major international tender business.  The idea of potential Russian export restrictions caused futures to rally on ideas of improved US export business, but we’re still 40c above a country which might not be exporting February forward.

Export sales this morning were mostly a positive for row crops, although wheat continues to muddle along.  Corn sales were reported at 1.17MMT (45.98mbu), soybeans at 1.18MMT (43.35mbu), wheat at 319,200MT (11.72mbu), soymeal at 226,800MT and soybean oil at 25,100MT.  Net cancellations of 66,000MT were seen in wheat by Brazil, which should certainly be viewed as a negative.  Quality issues out of South America were another supportive block under wheat, and if that quality driven demand slows we’ve got even more wheat in the states looking for a home.

Adding to wheat’s woes this morning was our neighbor to the North coming out with their latest production estimates which seemed to heap further bearishness on the recent wheat rally.  Statistics Canada pegged all wheat output at 29.28MMT vs. the average trade guess of 27.8MMT and up from last month’s guess at 27.5MMT.  The big jump came from spring wheat which was estimated at 21.221MMT vs. last month’s 19.936MMT.  To say this was a surprise is an understatement.  Canola production also took a decent jump to 15.555MMT from 14.079MMT last month, but still well below last year’s 17.965MMT.  Oats production was up marginally to 2.907MMT from 2.685MMT last report.  One thing to remember with the larger Canadian wheat production and stocks is the quality concerns reported this year.  This may keep US basis from being squashed in the near-term, but still nothing bearish about rising production estimates by Northern Hemisphere producers this late in the game.

 

Bottom Line: 3-days after looking like it had all the ammunition to keep edging higher, wheat is grasping for supportive news.  Technicals aren’t outright bearish, but topping action is present on most contracts.  Soybeans haven’t seen a lot of follow through selling through $10.00, and looks as though a recovery might be underway.

 

Good Luck Today.

 

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

12/2/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:50am: Dollar Index up 0.3180 at 88.2740; Euro down 0.00420 at 1.24370; Russian Ruble down 3.42% at 53.3902; S&P’s are up 5.75 at 2056.50; S&P’s are up 57.00 at 17,812.00; 10-yr futures are down 0.14%; The Nikkei closed up 0.42% at 17,663.22; The DAX is down 0.10% at 9,953.97; The IBEX-35 is up 0.42% at 10,717.70; Gold is down $23.10 at $1195.00; Copper is down $4.45 at $285.35; Crude Oil is down $1.09 at $67.91; Heating Oil is down $0.0286 at $2.1838; Paris Milling Wheat is up €3.50 at €191.75/MT.

Equities are on the slide this morning after the Russian government for the first time acknowledged that the country will fall into recession next year, battered by the combination of Western sanctions and a plunge in the price of the oil it exports.  The economic development ministry revised its GDP forecast for 2015 from growth of 1.2% to a drop of 0.8%.  The Russian Ruble seems to confirm this dire outlook, pushing to 53.3902 this morning, just off the record lows set yesterday.  The Ruble is down 40% so far this year.  According to the Associated Press, Russia has a solid balance sheet with low sovereign debt and sizable forex reserves, but the dependence on oil as a revenue stream has put it at the mercy of international market.  In the US today, November total vehicle sales are expected to edge higher to 16.55 million units from 16.35 million units in October.

Not much to report in the US this morning.  Later this week, precip will move into the southern plains and US-SE, but the majority of the Midwest is expected to remain quiet the next 7-days.  Extended maps keep this trend in place with the central Midwest and US-SE seeing normal to above precip during the 6-10, while the WCB and Northern Plains remain below normal on precip.  A warmup is seen coming during the 6-10 for the entire continuous US with above normal temps seen throughout.  Above normal precip slowly pushes west during the 8-14 with above normal temps holding.

 

While much quieter today than the way we ended yesterday, traders are still trying to get to the bottom of the wheat rally which caught almost everyone off guard.  The 25-30c gains witnessed by the close now marks $1.24 since the lows seen in September, and has March Chicago wheat trading at the highest level since early August.  The difficult thing in the wheat market is sorting out fact from fiction, and there was certainly a lot of fiction flying around yesterday.  The surging wheat market seemed to lift soybeans and corn, when they didn’t really have a lot of reason to do so.  The soft soymeal market on the close yesterday seemed to highlight this better than anything.  Nonetheless, our markets will continue to be especially sensitive to crude oil and overall investment demand for commodities.  The huge index fund selling witnessed during the last week is a major caution flag.

Helping boost the wheat market yesterday were several headlines related to Russian exports, and potential bans or restrictions cutting available supply from the Black Sea.  Prompting the concern over exports is the free fall in the Russian Ruble which has driven up the price of domestic wheat, flour and bread.  Combined with the economic unrest related to the Western sanctions, there is obviously a lot of concern from a political standpoint in Russia.  One thing is worth pointing out at the outset: Russia cannot ban exports in 2014 the way they did in 2010 as they are now a full WTO member, and would face fines for doing so.  Having said that, qualified sources suggest measures being enacted in Russia to slow or complicate Russian wheat exports range from only allowing Russian flagged vessels to execute in the Azov Sea, to implementing increased phytosanitary restrictions in an effort to maintain ‘quality,’ to requiring more documentation at each leg of the transportation system domestically.  Essentially, Russia doesn’t want to deal with rising inflation via bread and wheat prices due to a plunging Ruble, whether the fears are real or not.  By enacting all of these logistical hurdles, Russia could potentially slow the record export program they have in place.  As of last count, Russia still had 8MMT of outstanding wheat sales on the books, which could be put at risk depending on how serious political leaders are about slowing domestic prices.  As always, watching basis will yield more results than anything.

Before turning to the US, there are several other global nuggets to address.  Australia’s USDA, ABARE, released their December crop outlook last evening, cutting their 14/15 wheat crop to 23.2MMT, down 14% y/y.  The cut would compare with the USDA still at 24MMT, but is still above many private estimates in the 22.0-22.5MMT range.  Exports according to the USDA are estimated at 17.5MMT, but this has obviously been reduced by other analysts given the smaller crop size.  Australian basis has actually been weak from its very strong levels witnessed heading into harvest, thanks to an upturn in selling by both the Aussie farmer and exporter.  Wheat paid to the farmer is the highest it has been in quite some time, and Australia has also turned very competitive into SE-Asia.  Given their range of quality in this year’s harvest, Australia could be in the driver’s seat on exports this year, especially with an Aussie Dollar trading at multi-year lows.

Lastly on the world front, the news hedge fund Brevan Howard Asset Management was shutting its commodity fund also seemed to put commodity markets on edge.  The fund had around $630 million under management, and was down 4.3% on the year at the time of the writing, after being down 10.3% in September before a recovery.  The Bloomberg Commodity Index of 22 raw materials has tumbled 10% this year through November amid expanding global supplies.  While having the ability to point exactly to this fund liquidating is difficult to explain price action in any one market, the overall effect on the sector can be negative depending on positions.  This is a good segue into the Commitments of Traders Data which showed considerable selling by index funds over the last week.  As an aggregate position, selling across C,S,W,KW,MW,SM,BO,LH,LC,FC,CT,SB,KC, and CC totaled 68,123 contracts, the second largest week of combined selling going back to 1/2/2007.  While there might not be any direct correlation to the Brevan Howard news, it is a bit concerning.  The data suggests customer redemptions after crude oil fell to the lowest levels in years.  This is a negative for investment in our sector.

Elsewhere in the COT data, there was small buying by non-commercials in corn (+4229), small selling in soybeans (-1041) and small selling in Chicago wheat (-2322).  As is usually the case, the COT data is outdated and doesn’t reflect the surge in wheat and the selling in row crops witnessed Friday which could alter the aforementioned positions quite a bit more.  The net short in Chicago wheat by non-commercials totals -36,798 contracts as of 11/25, although this is likely much smaller sitting here today.  Otherwise, I do believe the index fund selling needs to be monitored to see if it is a trend or mirage.  A big upturn in index fund selling and customer redemptions isn’t something our markets want to see by long-only investment vehicles.

As mentioned yesterday, the biggest thing to undermine the wheat market could be the row crop markets which don’t have the headlines or fundamentals wheat does at the moment.  Specifically, it will be worth keeping track of the wheat/corn spreads as they ascent to multi-month highs.  WH/CH is currently sitting at +214.00c, the highest trade since August 7th, while KWH/CH is trading at +271.75c, the highest since September.  Feed demand wasn’t really a driver in the wheat market anyway, but wheat can’t afford to push away any ancillary demand.  Seasonally, wheat tends to decline vs. corn through year end and into the beginning of the year.

Only other thing of note would be the state crop progress reports released yesterday by some of the states with significant harvest left to complete.  Michigan reported corn harvest at 77% complete, up just 8% on the week, while WI was pegged at 78% complete and OH at 93%.  These aren’t market moving statistics, but need to be kept in context when we round the corner to the January WASDE reports.  Hard to believe maximum yield potential is still being achieved at this date given the weather experienced.

 

Bottom Line: A little bit of back and fill today as we consolidate yesterday’s rally.  While headlines grab attention, basis and spreads will tell the ultimate tale in regards to commercial activity.  Corn and soybeans still have a precarious head and shoulders pattern in place, while wheat charts look much better.  Keep downside technical objectives in view the next several sessions.

 

Good Luck Today.

 

Index Fund Selling 12-2

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.

12/1/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:50am: Dollar Index down 0.2570 at 88.0990; Euro is up 0.00330 at 1.24690; The Russian Ruble is off 4.41% to 52.24660; S&P’s are down 9.25 at 2057.00; Dow futures are down 60.00 at 17,752.00; 10-yr futures are up 0.27%; The Nikkei closed up 0.75% at 17,590.10; The DAX is down 0.39% at 9,941.61; Gold is down $4.50 at $1171.00; Copper is down $1.55 at $283.05; Crude Oil is down $0.04 at $66.12; Heating Oil is down $0.0026 at $2.1586; Paris Milling Wheat is up €2.75 at €187.00/MT.

The volatility continues to be found in crude and currencies with the Russian Ruble down almost 4.50% this morning to new record lows, while crude oil recovered from losses of another $2.28/bbls at the low last night.  While comments from OPEC have been focused towards American shale producers in terms of not adjusting their production quotas, currency fluctuations would suggest Russia stands to lose the most in this war of crude.  Production costs for Russian wells are far above that of Middle East producers, and even existing wells in American shale plays have break evens below current board prices.  There are major concerns the slide in oil prices could push Russia into a recession with Credit Default Swaps at the highest level since July 2009.  Economic data out of China didn’t help crude oil, with their official factory index falling to 50.3 in November, below the 50.5 expected by economists.

Some rain/snow mix moving across the southern Midwest this morning, otherwise quiet in the center north.  Precip will be confined to the central corn belt and east, with the bulk of the moisture occurring next weekend.  Nothing doing for moisture in the Northern Plains the next 7-days.  Extended maps from NOAA continue to point towards a warm up with much above normal temps slated for the mid-section of the country, with above normal temps for everywhere else.  Weekend maps put a band of moisture from TX-NY, covering much of the Midwest, but again, not much for the Northern Plains.  Doesn’t look like any additional severe cold through December 14th.

Weather table data for South America continues to point towards a very well watered Argentina as only three reporting stations are posting less than 100% of normal precip for the month of November out of 17.  The big production areas of Buenos Aires are all between 151-255% of average precip for the month of November, while Cordoba is 116-134%.  Brazil is a bit more of a mixed bag, but is improving over October.  Of the 29 reporting stations, 11 are less than 100% of normal precip for the month of November, but deficits are being erased quickly with the upturn in moisture.  Below is the percent of normal rainfall for the month of November in Brazil.

 

A mixed bag in our markets this morning following the universal weakness seen last night at the electronic open.  Soybeans and meal have recovered nicely from losses up to 14c, which was going to be important to prevent big follow through from Friday’s rout.  Corn and soybeans continue to have a large technical element, with many traders paying attention to the looming head and shoulders patterns in both commodities.  Both are following the script so far, and if the pattern verifies, it could mean beans trading down to $9.21 and corn near $3.50.  The area to be watching in regards to both patterns are the necklines at $10.00-10.03 in soybeans (SF) and corn around $3.75 (CH).  Wheat continues to show independent strength on a host of reasons including Russian production and export concerns, lack of deliveries, spread strength, covering fund shorts and positive chart action.

Wheat markets have been led by spreads the last several sessions, and that continues to be mainly the case this morning.  WZ/WH is back to trading an inversion this morning at +0.25c, up 1.50c on the day, but trading under Friday’s high print of +3.00c.  In addition, WH/WK has pushed back to -5.25c, tying the highest trade since May, and WK/WN has printed -4.00c, the highest trade since late August.  While the hard wheats aren’t as universally strong this morning, SRW continues to tighten spreads and keep domestic and export basis high.  Combine this with 100 delivery receipts being canceled last week, and zero deliveries so far in the December cycle, and there just isn’t a lot of bearish news to want to throw at this wheat market today.  After the close we will get updated COT data which will give us a clue as to how much more short-covering by funds needs to occur.

There were also several notes from Russia last week which newswires reported on to keep things firm.  The first was from SovEcon in which they cut their all-grain forecast for 2015/16 to 86MMT from 90MMT previously, mostly on the back of wheat due to poor establishment and emergence this fall.  This would compare with 104MMT in 2014, but it is important to note planted area for winter wheat was higher y/y.  In addition, several wire stories had comments about Russia possibly using a floating tariff on grain exports in 2015 if the domestic market reaches too high of a price.  This looks less likely, however, as most traders commented this would be a measure of last resort.  The International Grains Council also cut their world wheat production estimate to 717MMT, down 1MMT from last month, but still record large.

While weaker this morning, corn has been receiving some support from the idea planted acres for the 2014/15 crop are still overstated and could see a larger than normal reduction on the January WASDE.  Most traders had dismissed this notion after the October WASDE didn’t show the sort of cuts the monthly FSA updates were implying.  Yet, the spread between official FSA data and the data NASS is using in its tables remains wider than usual for late November.  Bears continue to point towards understaffed FSA offices, and priority being given to the new farm bill as to the latency of getting completed data.  Bulls stress it means additional cuts are still forthcoming.  As of the mid-November FSA data release, corn planted acreage stood at 85.2 million acres vs. the latest WASDE update of 90.9 million.  That is a difference of 5.7 million acres compared with 3.6-3.8 million during 2011-2013.  Acreage changes from October to January are usually pretty small, ranging from the largest drop of 0.4 million acres to a high increase of 0.3 million.  A larger than normal acreage change in the January WASDE could still alter the corn balance sheet, although a 2.0 million acre drop in planted acreage would cut around 350mbu off of available supply.  Expected cuts to exports would eat a large portion of that change, and feed and residual would be expected to change as well.  Nothing which is going to occur today, but something to keep on the back burner.

There were 40 deliveries of corn today, all re-deliveries, and 87 soybean oil.  The corn deliveries could be called especially light considering some of the fears of massive deliveries and where cash markets were trading a couple weeks ago.  The lack of deliveries in both corn and wheat speak to the firming tone in basis.

 

Bottom Line: Our Ag markets aren’t seeing the follow through selling pressure they were last night, although the session is young.  Two-sided trade in the soy complex wouldn’t surprise anyone given the slowly improving logistics in the East as well as the favorable weather pattern over Brazil at current.  Downside technical objectives have been outlined above, and keep them in sight.  Wheat doesn’t have very many bearish factors right now, but weak row crops and a floundering commodity sector in general won’t allow wheat to run too far.

 

Good Luck Today.

 

Brazil 123 1-1

 

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.

 

 

11/25/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index down 0.0100 at 88.1410; Euro down 0.00020 at 1.24340; Aussie Dollar down 0.77% at 0.85320; S&P’s are up 2.25 at 2069.75; Dow futures are up 20.00 at 17,812.00; 10-yr futures are up 0.11%; The Nikkei closed up 0.29% at 17,407.62; The DAX is up 0.86% at 9,869.88; The IBEX-35 is up 0.99% at 10,748.30; Gold is up $4.10 at $1200.70; Copper is up $0.10 at $300.70; Crude Oil is up $0.46 at $76.24; Heating Oil is up $0.0162 at $2.3830; Paris Milling Wheat is down €0.75 at €178.00/MT.

There really isn’t anything grabbing more headlines than the situation in Ferguson, MO, at least not in the US.  This analyst is not a social commentator, so boring economic data will have to do.  In the US today we’ll get a revision to Q3-GDP which is expected to be lowered to +3.3% (q/q) from the last estimate of +3.5%.  The downward revision is expected to stem from a wider-than-forecast trade deficit and a lower contribution to GDP from net exports.  We will also see US FHFA home prices for the month of September which are expected to show an increase of +0.4 m/m, and for the Case Shiller Composite 20 house price index to show an increase of +0.25%.  November US Consumer Confidence is expected to show a +1.5 point increase to 96.0, adding to the +5.5 increase and new 7-year high seen in October.  The Aussie Dollar is making new 52-month lows this morning.

The majority of the Midwest is open this morning, although there are snow showers over the Great Lakes region, as well as MT and WY.  Moisture will move into the Northern Plains and central Midwest tonight through Thursday, bringing varying amounts of precip to the area.  In terms of moisture ND is expected to see a general 0.50”, which will likely fall as snow, while MN is closer to 0.40”, IA at 0.30” and MO at 0.20”.  SD could see a dusting, but doesn’t look like much more.  Heavy precip is also expected over the Atlantic seaboard closer to the weekend.  NOAA extended maps show a band of dryness from W-TX to SD, but above normal precip on either side.  Temps will also diverge with ND/SD/MN/MT seeing below normal temps but almost every other state, especially those in the US-SE, seeing above normal temps during the 6-10 day timeframe.

 

A little bit of a Turnaround Tuesday in each respective market this morning as soybeans lead strength across the Ag complex.  To suggest the strength is related to any one news event or story is false as volumes are depressed due to the Thanksgiving Holiday, and light trading can push our markets around this week.  Still, domestic soymeal and soybean basis values have stabilized, and spreads have even clawed back part of last week’s gains, especially in soybeans.  It would appear our markets are settling into some fairly well defined trading ranges, with little on the immediate horizon to jar us out of them.  The demand for soybeans nearby remains astounding, so the pipeline needs to remain full.  Cash corn markets have been strengthening, but don’t seem enough for another leg higher.  Wheat markets have Southern Hemisphere production to keep tabs on, but little occurring in the Northern hemisphere now that most crops have been pushed into dormancy.  We’re about to enter the period between Thanksgiving and Christmas where news, and volume, becomes light.  The next major market-moving event won’t be until the January WASDE and SIAP reports.

Before diving into anything related to the major Ag markets, wanted to broach the subject of sorghum exports as it doesn’t seem to be getting its share of attention.  Yesterday’s export inspections report showed 5.1mbu shipped in the week ended 11/20, which pushed the marketing-year-to-date total to 76.1mbu.  This would be up 132% from a year ago, and already accounts for 33% of the entire marketing year export forecast of 230mbu.  For comparison’s sake, we’ve shipped just 18.7% of the corn forecast.  Even more astounding is how many total commitments we already have on the books at 3.878MMT, if one includes the flash sale from yesterday morning.  3.878MMT would compare with 4.700MMT for the entire 13/14 marketing year, and the 6.23MMT for the entire marketing year in 2001-2002, which was the largest year of the last 16.  The 3.878MMT accounts for 94.4% of the entire marketing year export forecast on the last WASDE report, and we’re only 3-months into the marketing year. China is obviously the reason for the increase, but if you think their NGMO argument is fluff, look no further than sorghum exports.

One other note before leaving inspections, soybean exports were again massive at 102.3mbu, which puts the last 6-weeks exports at 568mbu.  Of this week’s 102.3mbu, 78.3mbu were destined for China, and puts cumulative exports to China at 713mbu which are up 21% from a year ago.  Exports for wheat and corn have been disappointing the last several weeks as they compete with soybeans for elevations.  Until the soybean program winds down, whenever that may be, expect wheat and corn inspections to remain limited, even though there remains plenty of time for both to catch back up.

Yesterday also saw the last crop progress report published until next April, another reason for the dearth of news in coming weeks.  Corn harvest advanced to 94% complete, spot on with a year ago and ahead of 92% for the 5-yr average.  There actually remains a fair amount of corn left in the field around the Great Lakes region with 149mbu left to pick in MI, 134mbu in WI, 80mbu left in OH, 22mbu in PA and 96mbu in IN.  Combined there is still 481mbu left to harvest in these five states, which would be around 3.3% of the expected total production.  Not a huge deal, but harvest of these bushels will remain slow, and can’t be expected to hit maximum yield potential.  Soybean harvest was pegged at 97% complete vs. 95% last year and 98% average.  The only state really lagging averages is KY at 87% complete vs. 96% average, although there is still a fair amount of harvest left in NC as well.

Winter wheat conditions saw a universal decline across all geographies and all wheat classes yesterday as the crop heads into dormancy.  The largest decline actually came from NE which saw G/E conditions decline 9pts to 69% G/E vs. 71% a year ago.  WA also saw conditions decline by 5pts to 23% G/E vs, 77% last year.  Emergence nationally is estimated at 92% vs. 89% average, although SRW states remain the concern.  In particular, IL sits at 76% emerged vs. 90% average, IN at 88% vs. 89% average, OH at 91% vs. 92% average and MI at 86% vs. 98% average.  While some of these states may not be far from average, rarely have we had the kind of cold temperatures in the ECB we’ve seen in November.  SRW acres are already expected to see a decline, and using Informa Economics’ latest survey results, SRW acres in those four states were expected to be down 12.5%.  Assuming all of these states reached 100% planted, which they didn’t, 309,400 acres of the total 2.030 million never made it out of the ground prior to entering dormancy.  While that doesn’t necessarily mean complete winterkill, stands will be affected.

One last note, January soybeans have declined 6 of the last 10 years on the Wednesday before Thanksgiving, while advancing 7 of the last 10 years on the day after Thanksgiving.  Just something to monitor.

 

Bottom Line:  Turnaround Tuesday in effect for crops so far, but it doesn’t feel like our markets possess a great deal of conviction this week.  Soybeans need to keep moving to fill the pipeline, but South American weather is nearly ideal for Brazil.  Provided nothing is derailed, world carryouts will be massive during 2015, but we’re not there yet.  Range bound trade as we settle in for winter.

 

Good Luck Today.

 

Sorghum Outstanding Sales 11-25

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:45am: Dollar Index down 0.0690 at 8.2410; Euro up 0.00240 at 1.24130; S&P’s are up 5.00 at 2066.25; Dow futures are up 32.00 at 17,810.00; 10-yr futures are down 0.10%; The Nikkei closed up 0.33% at 17,357.51; The DAX is up 0.72% at 9,802.47; Gold is down $2.30 at $1196.10; Copper is down $0.55 at $302.35; Crude Oil is down $0.23 at $76.29; Heating Oil is down $0.0171 at $2.3642; Paris Milling Wheat is up €1.25 at €179.00/MT.

Asian equities led the charge higher last night as investors still like the sound of the surprise PBOC interest rate cut, and renewed hopes of the region’s biggest economy seeing a rebound in gross domestic product.  Europe followed suit after Germany’s forward-looking business confidence index rose unexpectedly, posting a better showing than last week’s downbeat Zew economic sentiment indicator.  The Financial Times ran a story over the weekend which showed US oil imports are close to a 30-year low as the shale revolution adjusts global oil trade.  Sometime in the next 1-2 years, the US is expected to surpass Saudi Arabia as the world’s largest oil producer, a far cry from the situation in 2008 which prompted the advances in drilling technology.

Wet weekend in the Midwest and southern plains, and more moisture falling across the Great Lakes region this morning.  Precip from the last 3-days is shown on the map below, and areas with substantial harvest progress remaining like Wisconsin and Michigan were not spared from the weekend events.  They are also receiving moisture this morning, and should delay the last harvest push there.  Precip the next 5-days will also be concentrated in the same areas, although by mid-week will have largely moved out.  Snow showers are expected to impact the Northern Plains by Tuesday/Wednesday as well.  Not a lot of change from the NOAA extended maps with Normal/below temps for much of the Midwest, while warmer temps are concentrated over the southwest.  Precip will remain above normal for the Northern Plains and Great Lakes region.

 

Fairly quiet news weekend in the US, and the evening market open reflected that even if soy complex prices are leading the charge lower this morning.  Despite the strong close on Friday, soy bulls definitely went home with concerns about the rally extending itself.  While calendar spreads have been weak for 7-10 days now, soymeal basis finally started to crack late in the week, train performance started to improve, and the US/SAM spread is doing its job to push some export business away from the record program taking place in the US.  In addition, Brazilian weather has much improved over the last couple of weeks, with planting progress catching up to averages and widespread rain coverage occurring.  Argentina still has issues, and needs to be monitored, but it is looking likely the worst of the soymeal squeeze may be past us.  On the other side of the coin, corn cash markets advanced last week, signaling that the market was able to gobble up much of the selling which occurred the last couple of weeks.  As we round the corner to December FND, cash markets in the delivery zone have appreciated nicely and could change ideas about deliveries.

Starting first with the corn market, domestic train bids advanced handily over the last week with places like Eddyville, Cincinnati, Evansville and Grp-3 basis all advancing 7-17c over the last week.  Processor markets were also firmer with destination ethanol plants like Cedar Rapids-IA, Marshall-MN, Decatur-IL and Blair-NE all advancing 7-20c over the last week.  With flat to better CIF bids and a bit weaker barge freight, cash in Zone 3 has scooted up to 6.5c below gross delivery equivalence for Nov/FH-Dec compared with 10-16c below just a week ago.  With the aforementioned occurring, and the CZ/CH still sitting at -12.75c/-13.00c, any remaining December hedges should be getting moved further out the curve.  It also removes the bearish tilt this analyst has held towards the corn market in recent weeks.  Movement by the farmer isn’t likely to impress anyone the next several weeks, so the basis strength could just be getting started, although train performance has been better recently.  Continuing monitoring these any other basis locations for clues to short-term cash market direction.

There was a bit of wheat business which took place over the weekend with Saudi Arabia buying 345,000MT of hard wheat for delivery in February or March.  The origins weren’t specific more than Europe, North and South American and Australia, but pricing breakdown had the tonnage to Jeddah Port at $275.94-283.45/MT C&F and the cargoes headed to Dammam Port at $287.34-292.00/MT C&F.  These prices look awfully cheap for US considering US-HRW prices went home Friday around $280.72/MT FOB out of the Gulf and $271.54/MT FOB off the PNW.  Continue to favor SRW over HRW in terms of futures strength, although the quality situation in South America needs to be monitored.  If the quality related issues are true, blending demand could continue to surface out of Brazil.  Nothing much to report on DNS.

Soymeal basis at the Gulf closed the week off around $5 to +75Z for spot and +60H for Jan, in addition to the well-discussed weakness in the East last week.  Calendar spreads are still in a downtrend, although are firmer on the day.  COT data released Friday showed the largest buying in Chicago wheat to the tune of 19,254 contracts, while soybeans saw net selling by the managed fund community of 10,620 contract.  Soymeal saw 8,206 contracts come off the managed fund net long.

 

Bottom Line: A little softer soy complex, but I don’t really want to chase this grain weakness.  Cash corn markets are firming, and I just don’t want to fight basis strength.  Wheat markets don’t have anything glaring either direction, but if the managed fund short continues to cover, get out of there way.  Keep it simple.

 

Good Luck Today.

 

RFC 11-24 HPC 11-24

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

 

11/20/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.0680 at 87.7130; Euro down 0.00100 at 1.25370; S&P’s are down 8.75 at 2038.50; Dow futures are down 64.00 at 17,595.00; 10-yr futures are up 0.19%; The Nikkei closed up 0.07% at 17,300.86; The DAX is down 0.85% at 9,392.10; The IBEX-35 is down 2.06% at 10,162.00; Gold is down $0.20 at $1193.70; Copper is down $2.70 at $300.55; Crude Oil is up $0.29 at $74.78; Heating Oil is up $0.0098 at $2.3510; Paris Milling Wheat is up €0.75 at €173.25/MT.

Equity markets are mostly weaker this morning after shaky economic data in China and Europe overnight.  Manufacturing activity in China fell to a six-month low in November according to HSBC’s factory survey.  This comes after an official report showed property prices softened in October in all but one of 70 cities across China, falling 2.6% overall.  In Europe, a purchasing manager’s index for factories and services activit dropped to the lowest level in 16-months in November. The Japanese Yen slipped to a new 7-year low overnight of 118.189 amid speculation Prime Minister Shinzo Abe will win re-elections and extend his economic-stimulus program.  In the US, unemployment claims are expected to show a 6,000 claim decline to 284,000, reversing part of last week’s 12,000 claim increase.  The October CPI is expected to edge lower to +1.6% y/y from September’s +1.7% gain.

Another dry start in the Midwest today, although more snow is slated for Buffalo, NY which can’t handle a flake more.  Precip starts in the southern plains tomorrow and Saturday, bringing fairly heavy totals to E-TX/SE-OK/LA/AR/MS in the 0.75-1.90” range.  Late in the weekend and early next week the system will push north and east, impacting the central/east corn belt as well as the Great Lakes region. This is likely to delay harvest efforts in WI and MI, the two states with the greatest amount of corn left to harvest.  As of Monday, WI still had 36% of its corn left to pick, and MI had 41% still in the field.  Cool temps roll back into the Midwest during the 6-10 day with below to much below normal temps for almost the entire Continental US.  Precip is expected to remain normal to below.  The 8-14 day is a carbon copy of the 6-10, so cold, dry weather for the next 15-days it looks like.

 

A tepid bounce in the Ag markets this morning following the drubbing witnessed yesterday in our space.  While everything was down hard, the focus was certainly on soybeans and meal as the first cracks in the bullet-proof meal story started to show.  Domestic basis levels at some locations in the ECB finally started to ease from their record levels, and train performance according to the STB actually improved in the east.  COT data has been reflecting farmer selling in both corn and soybeans, and it appears the counter-seasonal rally worked to shake loose enough stem.  It was a matter of getting it where it needed to go.  Weather continues to improve for Brazil as well, which will stem any further drop in production estimates, even if Argentina has their own issues.  Weekly ethanol production was a boost for corn, but weak longs are being tested in the managed money community.

According to cash sources, US domestic truck meal basis is down $2-6/ton vs. a week ago, while ECB rail values are now said to be down around $20-35/ton depending on location.  CIF-NOLA meal premiums were said to be unchanged around +80Z, but this has always been a domestic issue.  Add in the fact Columbus rail corn basis continues to appreciate to around -3Z vs. -30Z LH-Oct, and it speaks further to the improvement in rail with meal/soybean priority.  According to the STB’s weekly update, the CSX railroad saw average grain train speed improve to 17.7mph and average dwell times drop to 22.1 hours vs. 16.6mph and 39.5 hours the week before, respectively.  The Norfolk Southern watched grain train speed improve to 18.1mph and dwell times drop to 51.46 hours compared with 16.3mph and 67.15 hours the week previous.  Couple the aforementioned with calendar spreads which have been breaking lower for 10 sessions, and it becomes apparent the worst of the meal squeeze is over.  So now the question becomes how much premium should be extracted from our markets?  Jan soybeans look ready to defend the $10.00 area, and Dec meal he $365 area, but one must remember the large short positions commercials have built up the last several weeks.  It will most likely come down to who has more resolve: funds or commercials?  I never like betting against the people who actually use the stuff.

One more note before leaving the soy complex, both Jan soybeans and Dec meal have potential Head and Shoulders patterns forming, which could be warning of lower prices.  Yesterday and today’s lows look as though they are forming the right side of the neckline, awaiting a corrective pop to form the right shoulder.  Should this pattern unfold perfectly, which they never do, a rebound to the $10.40-10.50 area would be an optimal selling objective before prices broke through the neckline.  Using a measurement from the head down to the neck line and projecting that lower forms a downside target around $9.20, or the Sep/Oct lows.  An almost identical pattern is forming on December and March corn, so any sort of corrective rebound will need to be met with extreme caution.  Volume and momentum will be the key tools to watch.  At current, both On-Balance-Volume and Stochastics are forming bearish divergences which would be confirmed with a break of the left shoulder area around $3.60 December corn and $10.00 in Jan beans.

As mentioned above, ethanol production jumped sharply during the last week, and is worth revisiting here.  Weekly production surged 24,000bbls/day to 970,000bbls/day, the second highest tally on record, and sharply above the 898,000bbls/day needed to meet the USDA’s marketing year objective.  Ethanol production at these sort of levels clearly suggests the USDA’s marketing year target is too low, but more time is probably needed to assess an increase.  Despite the jump in production, stocks levels actually declined to 17.335 million barrels, near the lowest levels since March.  Helping stocks decline was a jump in gasoline demand to an 11-week high, which is undoubtedly due to the drop in RBOB price.  Ethanol prices corrected sharply yesterday, but are positive on the day so far.  The contraction in the RBOB/Ethanol spread remains a concern for discretionary ethanol demand, but so far it is not impacting ethanol production.  Margins remain solid, and ethanol plants continue to lead the charge in corn origination.  Keeping tabs on the aforementioned spreads and margins will be important.

Export sales are due this morning and will be watched closely for any additional meal cancellations or switches.  In addition, the torrid pace of soybean exports and sales will be monitored.  Export basis has been less than impressive for all commodities during the last 7-10 days, so corn and wheat exports are likely to continue disappointing until world buyers re-emerge at lower prices.  Corn and wheat don’t have the export program to defend current price levels, and CIF-NOLA premiums suggest the river is over-supplied with soybeans at the moment.  Nothing bullish spreads about the aforementioned.

 

Bottom Line:  A pop today won’t hurt, but export data this morning is likely to confirm the slowdown in interest for US grains.  The rally shook a lot of bushels loose from the farm which are now in position.  While the next round of bushels may be difficult to buy now that they’re locked in the bin, the market feels fairly well supplied at current.  Funds have built up some shaky long positions, while commercials are sitting on a pile of shorts.  Charts already look weak, and won’t take much of a shove to send them sharply lower.  Option protection might be a good play here.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.0850 at 87.6590; Euro unchanged at 1.25370; Japanese Yen off 0.61% to 117.59; S&P’s are up 0.50 at 2049.00; Dow futures are up 4.00 at 17,655.00; 10-yr futures are down 0.15%; The Nikkei closed down 0.32% at 17,288.75; The DAX is up 0.42% at 9496.43; The IBEX-35 is down 0.03% at 10,429.70; Gold is up $2.20 at $1199.30; Copper is up $1.00 at $300.20; Crude Oil is up $0.26 at $74.90; Heating Oil is up $0.0179 at $2.3805; Paris Milling Wheat is down €0.75 at €172.50/MT.

After passing the House with ease, the Keystone XL Pipeline bill failed in the Senate with Republicans failing to muster enough votes to pass legislation for the international oil highway.  The measure was defeated 59-41, narrowly missing the 60 votes needed, although Senate Republicans have already said this will be brought back up once the new Senate convenes.  According to people close to the matter, there will be 63 “yes” votes next Congress, and the magical 67 votes needed to override a Presidential veto is in reach.  Elsewhere, the Japanese Yen fell to a fresh 7-yr low against the Dollar after the BOJ maintained its ultra-loose monetary policy.  In the US today, October housing starts are expected to show an +0.8% increase to 1.025 million units, adding to the +6.3% increase seen in September.  Building permits are expected to rise +0.9%, adding to September’s +2.8% gain.

Some snow working across the Great Lakes this morning, although mostly quiet elsewhere in the Midwest.  While not widespread, a snowstorm which pushed over upstate New York dumped up to 6-ft. in some areas, claiming the lives of six people.  Still mostly dry around the Midwest until Saturday when moisture begins to drum up in TX/OK/AR, which will intensify over the weekend to dump moisture over MO/MS/AL/GA/SC/TN and up into the Great Lakes.  The forecast for just Saturday-Monday is shown below.  Temps retain their cooler bias through the 6-10 day, although a mild warm up to normal temps is seen during the latter part of the 8-14 day period.  Pecip slips to normal then to below normal late in the 8-14 for a big section of the Plains and Midwest, while the far Northern Plains still show above normal precip.

 

Weaker Ag markets once again this morning, with Chicago wheat leading percentage losses so far today.  As noted in yesterday’s commentary, the real demand led story has been meal and soybeans, supported by firm cash markets, firm spreads, non-commercial buying and poor railroad performance.  In the case of corn and wheat, supplies have always been plentiful, and while domestic demand appears to be stout, neither have a solid export program to speak of.  Wheat also appears to have run into some fairly major chart resistance and failed so far.  The buying being done by funds in both corn and wheat has been short-covering, which can start a rally by itself, but usually can’t sustain one.  The fact more feed wheat is being imported in the US-SE is also not a positive for corn or wheat.  Bulls need to be fed daily, and the trough is getting somewhat empty.

Starting first with the rumor mill, it was reported yesterday the vessel Peace Garden was set to load 45,000MT of French feed wheat for discharge in Wilmington, NC.  Similar to the soymeal from Argentina, nothing has shown up in Wilmington shipping manifests, although the ship is currently moored at a French port.  This would add to the 25,000MT of British Feed wheat which finally unloaded earlier this month in Wilmington.  This is bullish corn or wheat as the US still has feed wheat, and the import of foreign supply leaves that much more available domestically.  It is truly a sad state of affairs when it is cheaper to ship wheat from Europe to North Carolina than it is to rail wheat/corn from Ohio to North Carolina, and similarly cheaper to ship meal from Argentina to North Carolina than rail meal from Indiana to North Carolina at a time in which we have record corn and soybean supplies.

Switching gears a bit to South America, the latest plating progress statistics were released yesterday, and while improving, remain behind average.  Of most concern has been Brazilian soy plantings which jumped 16% w/w to 62% planted vs. 72% last year and 74% average.  Brazilian corn planting advanced 10% to 76% vs. 92% last year.  Brazil has now planted 40% of their soybean crop in the last 2-weeks, marking the largest 2-week jump in 15 years.  Of developing concern is the delays to Argentine planting with just 22% of the soybean crop vs. 28% last year and 32% average.  On corn, Argentina has planted just 38% vs. the delayed 40% of last year and well short of the 61% average.  Argy corn planting is the slowest in the last 20-years, and soy planting is the slowest of the last 10-yrs.  This could mark an opportunity for Brazil to continue supplying corn and soybeans into Argentina’s usual time slot next summer.

Morgan Stanley issued a note to clients earlier this week talking about looming acreage cuts on the January WASDE reports due to the stubbornly wide spread between current NASS data and official FSA statistics.  According to the bank, they see corn acreage eventually falling 2.1 million acres, while soybeans could slip as much as 1.4 million.  Several analysts were calling for cuts as large as these earlier this fall, but have since given up that fight since the October reconciliation.  Adding to the lack of clarity this year is the fact FSA offices have been devoted to livestock disaster payments as well as educating and signing up farmers for the new Farm Bill.  Extensions have been granted in many counties and states until December 31st, which could leave the matter unresolved until the January 12th reports.  It’s out there, although hard to read too much into it just yet.

Despite the futures decline this week, it is worth noting the corn basis strength this week.  Processors such as Ingedion are up 2-3c for Nov/Dec and 3-4c for JFM.  ADM-Marshall is up 6c w/w, while ADM-Columbus and ADM-Cedar Rapids are up 20c and 9c w/w, respectively.  Group-3 rail basis out of NE is up 7-10c for the Nov/Dec slots, while HETX basis is up 10c for Nov/Dec.  Evansville and Columbus trains are up 2-10c from Friday levels, and even PNW shuttles are up 4c for Nov/Dec although this is likely spill over support from the domestic market.  CIF corn bids are not going along for the ride, however, with spot barges pegged +74/77Z and Dec at +75/78Z vs. +77/78Z and –/80Z going home Friday.  This is why the CZ/CH has set back to -13.25c, and why the board doesn’t appear to be paying attention.  Ethanol and feed margins are solid, but there is no corn export program and until there is, processor basis strength doesn’t look like it will be able to stem the tide right now.

While on the subject of CIF bids, it is noteworthy that the CIF NOLA soybean market now has a 2c cash carry from Nov to Dec, which obviously doesn’t suggest a tight market.  This can readily be seen in the SF/SH which has swan dived from -2.75c a week ago to -7.75c this morning.  The export pull the last 3-weeks has been astonishing, setting records for weekly shipments twice.  Yet, spreads and barge freight act as though our soybean market is well supplied.  This should be a red flag for bulls, and also speaks to the farmers role in recharging the pipeline.  The cash market reflecting a carry isn’t a reason to buy.

Last, but certainly not least, the ethanol market continues to trade a premium to the Gasoline market on the front-end, which is a rather unusual occurrence.  The December/December RBOB/Ethanol spread is currently trading at -0.00580c/gln, just off lows near -0.03/gln yesterday, and would be the weakest trade since Mar/Apr.  This a concern as the RBOB/Ethanol spread is a direct representation of discretionary blending.  The 50/100/200-day moving averages for this spread are up around 56-70c gallon premium ethanol.  As with exports, the last thing this corn market needs is to take away additional demand when we need it more than ever.  Be watchful on today’s weekly production report for any sign of slowing grind or building stocks.  Export demand and poor rail performance are the likely culprits, but the corn market could be the one feeling the pain.

 

Bottom Line:  Weaker markets once again look to be the order of the day, as fresh bullish inputs seem to be lacking.  Meal basis is still firm, we’re still exporting and crushing soybeans, but the farmer has sold a lot of grain on the rally, and all of that supply might be finding its way to desired parties.  Wheat is running into chart resistance, and can’t rally everyday on winterkill threats.  We need exports for corn and wheat or swoon we will.

 

Good Luck Today.

 

HPC 11-19

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

 

11/18/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index down 0.3030 at 87.6220; Euro up 0.00650 at 1.25190; S&P’s are down 0.75 at 2039.00; Dow futures are up 3.00 at 17,620.00; 10-yr futures are up 0.02%; The Nikkei closed up 2.18% at 17,344.06; The DAX is up 1.15% at 9,413.29; Gold is up $18.50 at $1202.00; Copper is down $2.80 at $300.25; Crude Oil is up $0.13 at $75.77; Heating Oil is down $0.0103 at $2.3936; Paris Milling Wheat is down €1.00 at €172.50/MT.

After official data confirmed Japan had slipped into recession during the third quarter and stocks got routed, Japan’s Prime Minister told leaders of his party he would postpone a sales tax hike planned for next year until 2017.  The sales tax had been a major concern as Japan implemented an unprecedented stimulus plan to get the economy going, and with the slower growth it is thought additional stimulus could be planned.  In the US today, the market is expecting today’s October final-demand Producer Price Index to ease to +1.3% y/y from Sept’s +1.6% y/y.  After rising quickly earlier this spring, the PPI, like most inflation statistics, have fallen back over summer.  10-yr breakeven inflation expectations sit currently a 4-1/2 year low of 1.87%.  Also worth noting, the Brazilian Real dropped to a 9-year low of 2.6089 yesterday amid speculation President Dilma Rousseff’s economic team will struggle to restore growth amid allegations of corruption.  In addition, The Russian Ruble’s one-month implied volatility rose to 33% yesterday, the most volatile of all currencies in at least 9-years, and almost double that of the Brazilian Real.  These two currencies will be incredibly important in 2015.

Wide open Midwest radar this morning, and should remain that way for the next 3-days.  Beginning Friday and through the weekend, moisture will drum up out of the Gulf of Mexico, bringing notable precip to E-TX/OK/AR/LA/MO/MI/TN with localized amounts pushing above 2.50”.  The storm will track north and east, impacting the Atlantic Coast states, the ECB and New England by Monday-Tuesday of next week.  The 6-10 days keeps the above normal precip pattern in place for the majority of the Midwest with what looks like snow in the West and Rockies, while that over the East Coast could be a mix.  Temps will remain cool for everything west of the MS-River with below normal temps forecast. The 8-14 cools temps to below normal over the entire Midwest, but has a drier bias.  The majority of the Midwest now has at least some snow cover as far south as N-TX.

 

Weaker grains and a firmer soy complex this morning, in-keeping with yesterday’s trade.  The soy complex was buoyed yesterday by record export shipments, and a NOPA crush estimate which was above the average trade guess by over 5.0%.  The demand engine for the complex is showing no signs of slowing at these price or spread levels just yet, but bullish demand data is hard to come by for grains.  With the worst of the cold snap passed, no one wants to talk about potential winterkill until wheat begins to break dormancy next spring.  In addition, grains are competing with soybeans for export elevations, and export demand has been mediocre at best.  Farmers have been selling corn according to the most recent COT data, and the buying that has been taking place isn’t the kind bull markets are built on.  Grains need a fresh headline or else we will set back into recent ranges.

Just a quick mention on soybean shipments from yesterday. At 114.4mbu, last week’s shipments were an all-time record, and were up from expectations of 74.5-84.5mbu.  Of the total, 89.3mbu were sent to China, which is encouraging as those beans can’t be rolled to SAM or canceled outright once the Brazilian program starts next year. Cumulative exports now total 610mbu, are up 17% from a year ago and already represent 36% of the entire marketing year objective.  Based on the pace of sales and exports to date, the USDA’s recently revised export projection of 1.720bbu is too small.  However, how long we can maintain this pace is just as important.  Given the expected latency of the Brazilian crop being sown right now, the US export program could hold on longer than current estimates would believe.

Also supporting the complex yesterday was NOPA member crush for October coming in at 157.96mbu, well above the average trade guess of 150.9mbu, and marking the highest October on record.  In fact, October’s crush was the highest single month since December of 2013’s all-time record of 165.4mbu, and ranks in the top 10 highest months of all-time.  Based on the quick ramp up from September’s supply shortened crush, December 2013’s all-time record could be in jeopardy the next couple months given record cash crush margins, strong feeding margins and a record meal export program.  Soybean oil production came in at 1.804 billion pounds which was below last year’s 1.828 billion pounds, despite the ramped up crush, highlighting the weaker oil yield this year.  Stocks came in at 966 million pounds vs. expectations for 1.064 billion pounds, again due partially to the lower oil yield.  Soybean oil stocks of 966 million pounds are slightly above last month’s 937 million pounds, but are the second smallest since 2004.  NOPA members reported 708,000 tons of soymeal exports during October, up sharply from September’s 309,000 and slightly larger than last year’s 702,000.

A couple noteworthy items in Friday’s COT data worth sharing.  For starters in corn, the large spec position rose last week to 144,047 contracts, the largest since May 20th.  It’s how the large spec position is growing, however, which adds concern.  In looking at the gross short and gross long positions, we can see it is all short-covering by managed money.  As the chart below illustrates, the gross short position by large specs has dropped to 166,240 contracts from 317,684 5-weeks ago.  The gross long is essentially unchanged at 310,287 contracts vs. 321,213 5-weeks ago.  In addition, the gross commercial short, a sign of farmer selling, has jumped from 596,265 contracts 6-weeks ago to 733,995 contracts this past week, a change of 688 million bushels.  The US farmer is selling corn to the large speculator, and the buying being done is not fresh buying but rather short-covering.  The aforementioned isn’t usually the stuff bull markets are built on, so be wary of this rally.

The only other big data point worth sharing is in soymeal.  As of last Tuesday, the gross commercial short position had risen to a new all-time record of 252,762 contracts.  The net short position by the commercial of -141,963 contracts is the third largest on record.  Funds in soymeal have been buying as would be expected, but neither their gross long or net long is at a record, although is becoming large.  Point here is that commercials are taking a sizable bet soymeal prices will fall in coming weeks, not rise, while speculators are gradually increasing their bets soymeal will rise.  It is rarely a good idea to bet against commercials, especially when their position becomes historic.  See soybeans during the month of September.  Funds are trend followers, so their position becomes a liability if technical objectives are reached.  Again, be cautious about this market.

Crop progress reports were issued last night, putting corn harvest at 89% complete vs. 90% last year and 88% average.  This is in-line with expectations, but two states remain notable laggards: WI and MI.  WI is still only 64% harvested vs. 78% average, while MI is 59% harvested vs. 75% average.  PA/OH/IN/ND all still have 15-20% of harvest remaining, but are in line with averages.  Soybean harvest was estimated at 94% complete vs. 94% last year and 96% average.  KY is the only state notably behind average at 75% complete vs. 90% average.  Winter wheat conditions were unchanged at 60% G/E vs. 63% last year.  Oddly, almost every state saw their G/E rating decline in both the SRW and HRW belts.  Planting is 95% complete vs. 97% average and emergence is at 83% vs. 79% average.  IL remains well behind average at just 52% emerged vs. 74% average.  SRW acres will be lost this year.

Corn rail basis had a firmer feel to begin the week for both PNW corn shuttles as well as Group-3 rail out of NE.  Rail freight, however, remains weak and highlights the lack of demand pull.  BNSF cars are around -$100 bid and +$100 offered.  UP cars are -$200/+$100.  A rather sleepy market at current.

 

Bottom Line:  The soy complex has all the demand evidence it needs to keep things supported, although fresh highs don’t look necessary either.  Corn and wheat appear to be discouraging demand at these sort of price levels, not encouraging it.  With a 2.000bbu+ carryout, that doesn’t seem like the thing to be doing with corn.  RBOB/Ethanol spreads are also tightening up considerably, and will need to be monitored.  Not looking for fresh direction today.

 

Good Luck Today.

 

NonComm Corn positions 11-17

 

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.

 

 

 

 

11/14/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:40am: Dollar Index up 0.3110 at 87.9850; Euro down 0.00410 at 1.24490; S&P’s are unchanged at 2034.00; Dow futures are down 2.00 at 17,593.00; 10-yr futures are unchanged; The Nikkei closed up 0.56% at 17,490.83; The DAX is down 0.36% at 9,215.12; Gold is down $9.90 at $1151.60; Copper is up $0.45 at $299.90; Crude Oil is up $0.14 at $74.35; Heating Oil is up $0.0218 at $2.3839; Paris Milling Wheat is down €0.75 at €175.25/MT.

Very quiet equity markets as we get set to close the week, although crude oil weakness seems to still be stealing center stage.  Overnight, data out of the Eurozone showed GDP expanding by 0.2% in the third quarter, better than forecasters were fearing.  Germany posted Q3 growth of 0.1%, France was up +0.3%, although Italy contracted -0.1%.  The best news came from Greece whose third consecutive quarter of growth is the fastest in the Eurozone and makes the economy 1.4% larger than a year ago.  Crude oil hit fresh lows overnight of $73.25/bbl, the lowest trade since September 13th, 2010.  The ultimate decision of OPEC at their next meeting will be watched closely as low-cost producers such as Kuwait and Saudi Arabia have obviously said no production cut is necessary to support global prices, but higher cost producers who rely on oil revenue for funding governments might suggest otherwise.

Empty Midwest radar this morning as the cold snap continues its stranglehold on the midsection of the US.  A slight warm up looks to be on its way by mid-week next week, although temps will hang around the mid-20’s for most of the Midwest.  Still chances for moisture the next 3-days across the central plains, with KS seeing the bulk of the moisture which is sure to fall as snow.  Otherwise the Midwest looks to remain below average on moisture the next 15-days, with a slow warm up to around normal temps by Thanksgiving.

 

The first morning of lower prices is definitely peculiar considering the rallies we’ve witnessed this week.  Taking into account the losses from the overnight session, January soybeans are up 4.0c on the week, December Chicago Wheat is up 36c, and December corn is up 15.75c.  As we’ve seen multiple times this week, there isn’t a lot of sense in reading too much into any one day’s price action given the heightened volatility in the soy complex.  Still, much attention will paid to the export sales report at 7:30am this morning to see if the assumed cancellations of soymeal export sales is actually taking place.  The pace of soybean sales will also be monitored closely as that category continues to outpace last year and the USDA’s increased estimate.  Wheat and corn desperately need to see stepped up demand to defend their current prices, as the grain demand story is notably more stale than the complex.  Railroad performance is not improving in the East, domestic meal basis is still firm, and several cargoes of imported Argentine meal will do precious little to the black hole of demand that are poultry and hog producers at the moment.  Charts are still biased up for the time being.

Starting first with deliveries, the SX/SF spread finally encouraged some delivery activity with 75 certs being registered last night in Burns Harbor, IN.  All 75 were stopped this morning with 50 being stopped by RJO customer.  The deliveries weren’t really a surprise given where CIF-NOLA premiums and barge freight had the various delivery zones trading.  Zone 3 was 3-22c below delivery equivalence, and zone 1 was anywhere from 13-35c below gross DVE.  The deliveries in Zone 1 also pretty much signal the Laker soybean export program is complete for the year.  After trading as wide as -7.25c yesterday, the SX/SF is back up to -2.50c this morning.  CIF NOLA soybeans definitely had a weaker complexion yesterday, as did PNW shuttle trains.  Closing numbers at the Gulf had NDJ at +104/102/100F and PNW trains were +115/115/115F.

Rail performance in the East is still nothing to write home about, and doesn’t signal the worst of the meal tightness is over with by any means.  On the CSX, average grain unit train speeds were recorded at 16.6mph for the week ended 11/7/2014 vs. 18.0mph the week previous.  Average dwell times on the CSX spiked to 39.5 hours vs. 24.3 hours a week before, and remain the highest dwell times on their system by double.  The Norfolk Southern wasn’t much better at 16.3mph for average grain train speed vs. 17.3mph a week earlier.  Average dwell times on the Nessie increased from 51.23 hours last week to 67.15 hours this week.  BNSF performance isn’t much better with outstanding car orders continuing to climb w/w to 6,936 car order vs. 6,793 a week earlier.  Train speeds were essentially unchanged, while dwell times were a bit lower w/w.

There were obviously rumors of SAM meal trading into Wilmington, NC yesterday, although nothing has shown up on the shipping manifest as of this morning.  Credible sources suggest the total tonnage is around four vessels which would be roughly 260,000 short tons.  It is important to remember that the weekly average domestic meal demand runs right around 580,000 short tons on any given week for the entire US.  So in broad terms, four vessels of Argentine meal, which is significant, wouldn’t be enough to get the US through one week’s usage.  Now obviously this meal is going to be slated for the US-SE, which could stretch the supply a bit further, but context is important here.  At any rate, the fact we are importing soymeal and feed wheat in a year in which row crop supplies are an all-time record speaks volumes to the incredibly poor rail transportation we’re suffering through in the US.  The fact that it’s cheaper to ship meal and wheat into the US rather than rail it from IL/IN says all one needs to know.  Still SAM premiums were in literal free-fall yesterday with FOB Brazilian paper pellets trading all the way down to -5Z from +3Z the previous day.  Argy meal caught a bid yesterday, in-keeping with demand.  Until we sustained weakness in either domestic or Gulf meal premiums, however, it is difficult to think meal is stepping out over the cliff, although calendar spreads are keeping their downward bias with the SMZ/SMF off 0.40 this morning to +13.40.

Ethanol production appears to be responding nicely to the improved margin structure and solid export demand.  Weekly ethanol production of 946,000bbls/day was up from 929,000bbls/day the week before, and was the highest weekly total since early July.  Stocks rose by 536,000 barrels, but remain below levels witnessed for most of the last 3-4 months.  Exports continue to be the topic of conversation regarding ethanol, with the latest data available for September showing solid exports of 56.7 million gallons, up from 54 million in August, but below the 66.7 million gallons averaged from January-August.  Calendar year exports of ethanol are running at 590 million gallons, up solidly from 419 million gallons a year ago, and the 590 million gallons represent around 5.5% of total ethanol production for the first 9-months of the year.

 

Bottom Line: Export sales will grab attention and headlines today, but basis and spreads are still what matter in determining a top and better meal transference.  Wheat and corn are entitled to a bit of back and fill after the impressive gains this week, and corn needs to constantly keep demand in the forefront as it has the least reason to be rallying of anything in the Ag complex.  Funds want to own grains, and farmers have plenty to sell to them.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/13/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index down 0.0990 at 87.7220; Euro up 0.00330 at 1.24680; S&P’s are up 4.75 at 2040.75; Dow futures are up 39.00 at 17,616.00; 10-yr futures are down 0.02%; The Nikkei closed up 1.14% at 17,392.79; The DAX is up 0.76% at 9,280.86; Gold is up $2.00 at $1161.10; Copper is up $2.60 at $305.10; Crude Oil is down $0.55 at $76.64; Heating Oil is down $0.0378 at $2.4091; Paris Milling Wheat is up €0.25 at €175.00/MT.

Equities in Japan surged to a 7-year high overnight as machinery orders in October rose 2.9% over the previous month, despite expectations for a slight decline.  There is hope the extreme stimulus measures the BOJ has enacted are finally starting to kick in.  In the US today we will see unemployment claims data which is expected to show a small increase of 2,000 claims to 280,000 following last week’s decline of 10,000 to 278,000.  Weekly EIA data will be released today due to the Veterans Day holiday, and is expected to show a 1.1 million barrel rise in crude oil inventories.  In addition, Brent crude oil hit a 5-year low on Wednesday on expectations OPEC will not cut production on its upcoming Nov 27th meetings.  Kuwait Oil Minister Al-Omair reiterated Saudi Arabia’s stance yesterday when he said OPEC will not cut oil production in response to lower global prices.  North American shale producers are in the crosshairs.

Scattered snow showers around the Great Lakes region this morning, but dry everywhere else which is experiencing the coldest night/morning of the cold snap so far.  Temperatures last evening dipped below zero in areas as far south as KS, while OK and N-TX saw temps in the single digits.  MT had several locations indicate double digit below zero temperatures, without wind chill factored in.  The Midwest will remain mostly dry until additional moisture moves in Saturday/Sunday to the central/northern plains and WCB.  Snow showers are indicated to bring between 0.20-0.50” of moisture to SD/IA/MO/KS, but remaining mostly dry thereafter into the 14-day outlook and into Thanksgiving.  No big warm up is seen, however, with a gradual increase in temperatures although remaining below normal through the end of November.  Questions fly if this is a precursor to the rest of winter?

 

Another day, another wild ride in the soy complex.  After being up 23c at the highs, January soybeans posted a dramatic reversal around noon to finish the session down 16.25c with many market pundits quick to posit that this was the blow off top we’ve been waiting for.  If that truly is the case, we’re not seeing the heavy follow through pressure one would associate with a major top being formed as prices hover around small gains on the evening session.  As impressive as the soy complex reversal was, the wheat strength was equally as impressive with many contracts up close to 20c on the day. The independent strength of grains vs. oilseeds will be something to monitor in coming sessions as it has been generally accepted up until yesterday that corn and wheat were just along for the ride.  It is this analysts’ opinion that is still true with corn.  Nonetheless, weekly ethanol statistics will be released today and give us a clue into ongoing corn strength, while export data will be delayed until tomorrow.  Charts and techs are arguing for a soy complex top, although cash is still singing a different tune.  Risk management is needed regardless of the outcome.

The chart formations in soybeans and soymeal certainly look like tops, having posted a large reversal from the previous day’s strong close.  However, it should be noted that total volume in the soybean market yesterday was just 316,644 contracts, which is the largest since 10/30, but smaller than the reversal posted on 10/30 which included 346,523 contracts traded.  On-Balance Volume, a running net total of up volume vs. down volume, is declining from its 11/7 peak, but is still solidly in positive territory, highlighting the overwhelming nature of volume on up days vs. that on down days.  Soymeal has been the leader, however, and did post sizable volume of 184,629 contracts, the largest since 10/28, and more than the reversal day of 10/30.  On Balance Volume has slipped into negative territory on soymeal during the past two sessions, illustrating the shifting tide within the product market.  Calendar spreads have been the other indictor traders have been watching closely, and the SMZ/SMF did post fresh lows for the move yesterday at +13.20.  The thinking is the inverse needed to cause enough pain to force end users of meal to defer purchases which would cool record basis levels.

The cooling of basis is certainly happening in South America, but not so much in North America.  Argy and Brazil soymeal basis has been collapsing the last week to ten days, but actually saw Argy basis firm for Nov slots by the end of the day at +24Z vs. +15Z earlier in the day.  Some of this strength is thought to be tied to rumors of four soymeal cargoes trading into Wilmington, NC yesterday after the import arbitrage opened to levels which made it impossible to pass up.  No vessels have been declared in the Wilmington shipping lineup, something we’ll be watching closely in coming days.  Despite the rumors, however, there were no big changes to domestic meal premiums yesterday, which would suggest four cargoes aren’t going to be enough to do the job.  US domestic soymeal use is around 580,000 tons/week, so even if the vessels are panamaxes, 260,000MT is only half a week’s usage.  Perspective.

Worth keeping track of the margins for meal users, as those too will key us in on a possible slowing of the frothy demand at current.  Broiler crush margins were pegged at 84.11c/lb on Tuesday, down from 84.42c/lb last week but up from 68.94c/lb last year.  These are also sharply above the 5-year seasonal average at 60.00c/lb.  Board hog rush was sitting at $114.20/hd Tuesday, vs. $111.95 last week and $101.05 last year, and well above $63.00 on the 5-year average.  Crush plants are also still in the driver’s seat with estimated cash crush margins in C-IL at $3.37/bu vs. $3.30/bu last week and $1.29/bu last year.  5-year seasonal averages sit around $1.00/bu for this time of year, which are still historically good.  Looking at margins helps one understand why both the producers and end users of soymeal can’t get enough product.

The strength in the wheat market was a bit perplexing to some analysts, with winterkill not sufficing as enough of a catalyst.  The front end strength also didn’t jive with winter kill as the WZ/WH rallied all the way to even money before puking out to -5.75c on the close with heavy volume trading.  There was no change to commodities under registration, so the exact reason for the strength is still a bit unclear. Still, all three wheat exchanges saw a strong performance in the Z/H calendar spread, and Gulf SRW basis has been firming.  Export sales will need to be monitored closely tomorrow, and cross referenced with COT data to see how much of the move was commercially led vs. non-commercial.  Funds love to buy headlines, and the cold snap surging as far south as OK/TX onto uncovered wheat is still a concern, but might have been a convenient reason for funds to short-cover.  Adding credence to this idea is the fact WZ traded above its 100-day moving average for the first time since May 27th.  The programmers are definitely paying attention to that.

 

Bottom Line:  Shaky performance in the soy complex yesterday which could see follow through at some point today, but the stalwart nature of grains yesterday and this morning is impressive.  Corn has little to no reason to be rallying at current, but if funds decide they want to be long grains going into year end, good luck talking them out of it.  Charts are positive, basis is still firm as are spreads.  Continue monitoring these three aspects for clues to markets changing direction.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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