Outside Markets as of 6:10am: Dollar Index unchanged at 94.1980; Euro down 0.00120 at 1.13740; Loonie down 0.53% at 0.80030; S&P’s are down 0.75 at 2094.75; Dow futures are up 6.00 at 18,000.00; 10-yr futures are down 0.06%; The Nikkei closed up 0.36% at 18,264.79; The DAX is up 0.33% at 10,997.59; The IBEX-35 is up 0.60% at 10,869.90; Gold is up $17.80 at $1218.00; Copper is down $0.60 at $260.85; Crude Oil is down $2.00 at $50.82; Heating Oil is down $0.0371 at $1.8485; Paris Milling Wheat is up €0.50 at €186.25/MT.
Greece is on the tape once again this morning, although the Greek saga is proving much more boring to markets and traders this time around than the last. The European Central Bank approved a €3.3 billion increase in emergency funding early this morning as leaders continue to hash out details of the Greek austerity package. Crude oil is getting slammed again this morning, off over 3.50% as traders brace for another large increase in energy inventories. The American Petroleum Institute reported US crude stocks as rising 14.3 million barrels last week, which if confirmed on today’s EIA data, would be the largest weekly build on record back to 1982. Traders are only expecting a crude inventory build of +3.0 million barrels, but expectations have been broadly exceeded over the last 6-weeks. $50/bbls appears to be a sticking point for the time being.
A brief respite in temperatures this weekend before another cold plunge next week, although the most bitter cold will be confined to ND/MN/IA and the rest of the Great Lakes. Precip is also expected to remain below normal, centered over IA and MO during the 6-10 and 8-14 day outlook. A bit better snow cover is present over the SRW belt going into the next cold snap than the previous one, although snow cover remains especially limited from SD to TX. Temps Sunday/Monday will need to be monitored in NE/KS/OK where limited snow cover exists and temperatures look to dip down into the teens and single digits for lows. Some weather forecasters are reporting heavier rainfall in Brazil, impacting early harvest efforts there. It is early yet, but an increased rainfall pattern during harvest will be something to monitor.
Sharp reversals posted on all of our charts, with outside reversals left on soybeans wheat charts in particular. In a ramp up to March option expiration tomorrow, soybeans hit $10.12 before heading lower, while wheat markets saw an about face when word hit the wires Egypt had rejected all offers in the US-only tender, citing high prices. Much of the bullish momentum picked up from the previous 2-4 sessions was dented, and now markets await the USDA Outlook data tomorrow, which is expected to be mostly a wet blanket on the idea of higher prices. Expect tomorrow to see erratic price action with option expiration, USDA Outlook Forum, Brazilian harvest pressure, cold temps across the US this weekend and potential headlines out of Greece and Ukraine. Also important to remember there are seven sessions, including today, left in the spring insurance pricing period.
Beginning first with wheat and Egypt, offers were submitted by US exporters in a US-only wheat tender as part of the $100 million credit line extended to the Egyptian government for importing US grains. Offers hitting the wire early yesterday morning included US-SRW or HRW at $287/MT FOB (seller’s options), US-SRW or SWW at $299.87/MT FOB (seller’s option), US-SRW at $292.88/MT FOB and US-SWW at $336.46/MT FOB. Egypt quickly canceled the tender and sent futures plummeting as they balked at offers $50/MT higher than the last round of Black Sea and French business. Also, many of the offers were out of tender terms with increase vomi specs and optional quality classes. The lone SRW offer at $292.88/MT for guaranteed GASC specs, and using ocean freight of $22-25/MT equated to +205/210K vs. current FOB offers around +80K. That price differential right there shows the availability and premium for low vomi-SRW in this market year: $1.30/bu. Incredible. For comparison purposes, HRW can be offered out of the TX-Gulf at +135/140H/K, and should be the class and quality used by Egypt, given its almost $0.70/bu cheaper. The tender was also complicated by the credit line wrinkle, which may have pushed Egypt to wait and either tap it for cheaper HRW, or wait until new crop and buy higher (hopefully) quality SRW LH-June. Either way, US quality is at a premium as cash traders have known since last fall. Higher quality wheat will be a necessity in 15/16.
Impressively, however, H/K spreads hung in tough at all three wheat exchanges yesterday and overnight, a possible sign the selling yesterday was headline driven, not commercial. US wheat is expensive for a reason; quality is scarce. This doesn’t change with one cancelled tender.
A good segue into the weekly deliverable stocks reports with total SRW wheat stocks falling about 500,000 bushels combined at all six delivery locations. Deliverable grades of SRW stand at 37.219mbu vs. 37.699mbu last week and 43.880mbu last year. Non-deliverable grades now total 19.986mbu vs. 3.542mbu last year, a 464% increase y/y. The chart below shows a quick recap. HRW deliverable stocks fell 550,000 bushels w/w to 42.717mbu, down from last year’s 54.490mbu. In HRS, stocks rose 111,000 bushels in Duluth/Superior, and 61,000 bushels in Minneapolis to put combined stocks at 26.701mbu vs. 18.301mbu at this point last year. Non-deliverable grades are on par with week ago and year ago levels as protein is the chief consideration in the HRS this year.
Switching gears to South America, Brazil reported harvest progress yesterday, pegging soybean harvest as of 2/13 at 11% complete, an increase of 3% w/w. This is about half the progress in 2014 of 21%, and less than 15% average at this point as rainfall suspends harvest efforts. Brazilian 1st crop corn harvest was estimated at 15% complete vs. 9% last week and 21% last year. Brazilian 2nd crop corn planting progress was listed at 28% complete vs. 17% last week and 27% last year. The slow start to Brazilian soybean harvest is supporting basis for prompt delivery to the Gulf, keeping the US export window open a bit longer. The lack of Brazilian farmer selling is also supportive, with analysts pegging the farmer at 25% sold vs. 40% last year due in part to currency considerations. Using CIF bids of +82/85H, Zone 3 cash basis is around 3-5c above gross delivery equivalence. FH-Mar is around 4c below, and full month March right at gross DVE. This should support the SH/SK, and probably limit deliveries in the early going next week at least. Corn bids are steadyish with Zone 3 cash around 4c below gross DVE, despite much cheaper Argentine and Ukrainian maize still being offered.
Weekly ethanol production on tap this morning at 10:00am due to the President’s Day holiday Monday. Ethanol production saw a nice reversal last week with margins essentially unchanged on the week. We’re probably finding out what the ethanol storage infrastructure can really handle, although RBOB has finally moved back to a sustainable premium over Ethanol with spot month at 9c over ETH, while April-August sits at 30c premium RBOB to ETH. This is what has been needed to reignite discretionary blending, and offer drivers a reason to opt for higher ethanol blends at the pump which have been absent since December.
One last note, one prominent Ag weather forecaster made mention yesterday of the deteriorating condition in the South African corn belt as the crop pushes into pollination. The western portion of the South African corn belt has received less than half of normal precip during the past month, and temps during the last week have pushed into the 90-100* range. The weather forecaster was estimating national production losses of 10-15% at current, with up to 20% losses if rainfall does not improve before the end of the month. South Africa typically produces around 12-15MMT of corn, and exports between 2.0-3.5MMT of that total. Not a major exporter by any stretch of the term, but can impact trade flows to the Middle East if production declines are severe enough.
Bottom Line: Poor technical trade yesterday has several charts looking heavy, although the fundamental situation hasn’t changed all that much. Headline risk will be high the next 48-hours and over the weekend, so position accordingly. The market will be watchful for continued strong performance in corn demand today and tomorrow, especialy as next year’s balance sheets take center stage. A delayed Brazilian harvest will keep the US in business a bit longer, and US wheat may continue to be a domestic feature.
Good Luck Today.
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