Outside Markets as of 5:40am: Dollar Index up 0.0380 at 79.8530; Euro down 0.00170 at 1.36660; S&P’s are up 0.75 at 1966.50; Dow futures are up 10.00 at 16886.00; 10-yr futures are up 0.04%; The Nikkei closed up 0.29% at 15,369.97; The DAX is up 0.23% at 9,925.44; The IBEX-35 is up 0.13% at 11,021.90; Gold is up $1.30 at $1327.90; Copper is down $0.20 at $320.20; Crude Oil is down $0.33 at $105.01; Heating Oil is down $0.0085 at $2.9697; Paris Milling Wheat is unchanged €184.25/MT.
Mostly firmer equity markets today in front of the first of two employment reports this week. Later this morning we’ll get the ADP private payroll report which is expected to show a solid rise of 205,000 jobs added, strengthening from May’s report which showed hiring of 179,000. This should hopefully set the stage for a solid June unemployment report which market consensus puts at 215,000, close to the May increase of 217,000. The market is also expecting the unemployment rate to be unchanged from the 5-3/4 low of 6.3% posted in April and May. The labor force participation rate is seen remaining near the 36-year low of 62.8% from April and May as well. The labor force as a percentage of the entire population is the lowest since 1979. May factory orders out later today are expected to show a decline of -0.3% following an increase in April of +0.7%.
Showers moving across the southern plains this morning, but otherwise the Midwest is enjoying a welcome day without moisture. Things should be mostly quiet outside of the southern plains the rest of the week until scattered precip pops up Friday into Saturday for the entire Great Plains from ND-KS. Totals are expected to remain light with heaviest amounts under 0.50” in ND. This precip will move east into IA/MO late in the weekend, bringing another 0.50-1.00” to most of IA, with IL/IN/OH seeing moisture at the beginning of next week. Extended weather maps remain favorable for the Midwest with below normal temps for the entire central corridor accompanied by normal/above precip which gets us out to July 11th. The 8-14 day is similar, although a little drier in the southern plains, but nothing threatening through July 15th which should mark the beginning of pollination for corn.
Mixed markets this morning with soybeans firm and grains a bit softer as offices empty ahead of the July 4th holiday Friday. Most are still digesting the USDA data from Monday and the implications it carries the next 3-months, especially provided the current weather pattern rolls forward to produce favorable reproductive phases for both corn and soybeans. It is difficult to really get a good gauge of cash markets following the USDA reports in this holiday shortened week, but for the most part grain movement has shut off as would be expected and the positive margin structure for domestic end users of corn and soybeans hasn’t gone anywhere. Still, buyers are armed with good forecasts and data from the USDA saying old crop supplies are larger than previously thought, so most are going to remain hand-to-mouth as long as possible.
End user margins as compiled by rjomrt.com mostly improved last week as the drop in board grain prices and the continued improvement in meat prices keeps margins elevated. MN Spot Gross Ethanol margins improved to $1.07/gln vs $1.06/gln last week and $0.85/gln last year. Poultry margins improved to 89.3c/lb vs 88.99c/lb last week and 80.43c/lb last year. Hog crush tabulated at $152.34/hd vs $145.42/hd last week and $87.80/hd last year. Cattle crush remains woefully in the red at $85.94/hd vs $100.13/hd last week and $208.25/hd last year. The constantly surging feeder cattle market is easily offsetting any gains seen by live cattle or the drop in corn prices, so unless the feedlot is vertically integrated with slaughterhouses and packing facilities, odds are good money isn’t being made. C-IL soy crush margins jumped to $1.17/bu vs $0.91/bu last week and $0.84c/bu last year.
Reuters published an article overnight talking about the burdensome stocks levels in China, which should eventually lead to the government scrapping its stockpiling program for corn as it has with soybeans and cotton. Stocks of corn in China, while not 100% clear, are thought to be around 100MMT, which is over half of the world’s expected carryout for the 2014/15 crop year. Because of the government’s push to elevate farm income, their stock piling program has kept domestic prices artificially high, causing end users in southeast China to opt for cheaper, imported supplies from countries like the US. If China begins to rotate inventories, or become more liberal with dumping supplies on the domestic market, or even exporting some of the supply, world prices could be pressed even lower. Because the situation in China seems to be one of logistics and keeping supply in condition, it looks increasingly likely China will not be a major corn importer in the 14/15 marketing year which is one less demand cog. Couple this with the current MIR-162 rejections, and the USDA’s current 1.700bbu corn export forecast for 14/15 looks appropriate to possibly even a touch high. Price will be the ultimate arbiter of supply.
The Financial Times also had a good piece talking about the possibility of improved demand for commodities by passive and active investors in 2014/15. That article can be found here: http://www.ft.com/intl/cms/s/0/d4fc6394-006e-11e4-9a62-00144feab7de.html?siteedition=intl#axzz36J8caBGM
Egypt’s GASC bought 240,000MT of wheat in their latest international tender for August delivery, bypassing all US and French offers in a sign of the West’s competitiveness into MENA. The average price on the tender was $252.38/MT C&F, around $0.20/MT above the latest tender two-weeks ago. US offers centered around $259/MT C&F. A quality theme is already popping up with traders said to be adding in a premium for Romanian wheat given doubts surrounding the country’s harvest.
Several spreads hit contract lows during yesterday’s session including the WN/WU, WZ/WH, WH/WK and the WK/WN, all of which are trading around 63-83% of full financial carry. The forward curve continues to reflect good quality and abundant supplies around the OH-River Valley delivery warehouses. Interestingly, as the WN/WU and MWN/MWU both hit fresh contract lows yesterday, the KWN/KWU hit a new contract high, highlighting the crop expectations for each class, and the inter-market spread taking place as evidenced by last week’s COT data. Several soybean spreads also hit contract lows including the SX/SF, SF/SH and SH/SK as traders waste no time pricing in larger new crop soybean supplies. Keep an eye on -10.00c for the SX/SF as this would be near full delivery storage carry with no contribution to interest, which might not be a bad place to move hedges to January.
A few basis moves of note yesterday including Brazilian corn offers sliding 7-10c from spot through December to bring their FOB prices right down to current US offers. Both countries are now offering corn around $192-193/MT FOB, while Argentina remains several dollars higher. Traders have been waiting for Brazilian supplies to have more of an impact on their competitiveness, and it looks like those supplies are finally getting into position. On the opposite end of the spectrum, Brazilian FOB soybean offers continue to appreciate with spot offers now +150Q, August at +115Q and Sept at +190U. This would compare with the US at +100N for spot and +180U for September. Would appear Brazilian farmer selling of soybeans has come to a screeching halt, and so too will the imports into the US of Brazilian soybeans at that type of price spread.
Weekly ethanol production out at 9:30am with production expected to remain elevated and well above the level needed to hit the USDA’s marketing year forecast. Keep a close eye on ethanol inventories and EIA gasoline demand, as these two will provide clues about production moving forward.
Bottom Line: Mixed open as we continue to digest the wave of bearish data dumped on the market Monday while trying to retain some measure of premium as grains enter the key reproductive stages in coming weeks. Global grain inventories are abundant, exporting nations are or will harvest adequate crops, weather remains price bearish, funds are in sell mode, charts remain terrible and end users are content to watch prices slide. At some point we’ll need a relief bounce, but nobody is getting too lathered up about the next bounce to sell.
Good Luck Today.
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.