11/4/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:25am: Dollar Index down 0.1590 at 87.1440; Euro up 0.00250 at 1.25190; Russian Ruble is off another 1.25%; S&P’s are down 3.25 at 2007.75; Dow futures are down 17.00 at 17,268.00; 10-yr futures are up 0.20%; The Nikkei closed up 2.73% at 16,862.47; The DAX is up 0.35% at 9,283.95; The IBEX-35 is down 0.20% at 10,353.20; Gold is up $1.80 at $1171.60; Copper is down $1.20 at $305.30; Crude Oil is down $2.22 at $76.57; Heating Oil is down $0.0510 at $2.0668; Paris Milling Wheat is down €3.00 at €169.00/MT.

The focus this morning has to be on the energy sector which finds most of its components down over 2.00% after a report from Saudi Arabia said the kingdom is cutting its prices for customers in the US in an attempt to stifle shale oil development.  Oil analysts have said this doesn’t bode well for OPEC as Saudi Arabia’s decision to keep prices low will hurt the economies of other countries inside the cartel, and could raise animosity towards the nation.  At the lows this morning, crude oil touched $75.84/bbl, the lowest spot trade since October 4th, 2011.  The chart in yesterday’s commentary highlights the breakeven price for a barrel of crude oil at various shale plays around the United States.  The market is estimating today’s September US trade deficit to expand slightly to -$40.2 billion from -$40.1 billion in August.

Large band of showers stretching from W-TX to N-IN this morning, and bringing soaking rains to areas in between.  The 5-day forecasted precip map is shown below with heavy rains expected the next 3-4 days across TX/OK/AR and parts of the mid-south.  This may impact very late corn harvest in TX and late soybean harvest in AR/MS/TX, but shouldn’t push far enough north to really impact the central corn belt.  Extended maps from NOAA suggest a cooling trend for the Midwest with well below normal temps during the 6-10 day and 8-14 day periods.  Could be our first legitimate cold snap of the season.  Precip looks as though it will remain on the below normal side for the majority of the Midwest.

 

Weaker prices again this morning as Ag markets see follow through pressure after yesterday’s whipsaw session which ultimately left row crops lower and wheat unchanged to better.  Soymeal is certainly under pressure, as are soymeal calendar spreads, but soybeans and corn are weaker than meal at this hour which begs the question whether this is recently added longs puking or whether this is the meal tightness actually being resolved?  Ramp up to the November WASDE begins this week with private estimates being kicked out each day, and the general consensus seems to be towards a slight bump in soybean and corn production.  History is worth paying attention to as it shows USDA actual corn production coming in below the average trade guess in 7 of the last 8 years, despite the tendency for USDA to raise corn yields in November after raising them in both September and October.  On soybeans the results are much more mixed with USDA soy production being higher than the average trade guess four times out the last eight years, lower three times and unchanged once.  USDA’s estimate of demand for the November WASDE relative to final demand on corn has been very mixed, but they have consistently underestimated soybean demand on this month’s report.  Over the last seven years, six times the USDA’s November soybean demand estimate has been too low, and this year looks like it could be as well.

Crop progress out yesterday afternoon with corn harvest coming in at 65% vs. 71% last year and 73% on the 5-year average.  This was about 5% ahead of expectations, although northern tier states have plenty of crop to harvest yet.  ND is 48% harvested, MI 31%, OH 52%, PA 51%, WI 33% and a host of states right around 60%.  Soybean harvest was estimated at 83% complete vs. 85% last year and 83% on the 5-yr average.  States with significant progress left include MO at 64%, KY at 51%, NC at 30%, OH at 72%, IN at 73% and MI at 71%.  The rains this week could hinder late soybean harvest efforts.  Winter wheat conditions were unchanged at 59% vs. 63% a year ago with HRW states generally seeing declines while SWW states saw improvements.  SWW conditions in the PNW remain sharply below a year ago with WA at just 26% G/E vs. 80% and OR at 39% vs. 73% last year.  Still the US winter wheat condition index remains above both the 5-yr and 10-yr averages thanks in large part to decent HRW conditions which have been lacking more years than not.  IL/IN/MO still have a fair amount of acres left to seed at 69%, 82% and 56% planted, respectively.  IL is only 36% emerged vs. 62% average.

While old news this morning, worth noting the record shattering export week for soybeans with 101.8mbu shipped in the week ended October 30th, besting both expectations of 68-77mbu and beating the single week record of 87.8mbu from last year.  Shipments to China came in at 78.6mbu, and were being loaded out of every possible port of the United States including the PNW, US Gulf, Atlantic Coast, North Texas, East Gulf coast and St. Lawrence Seaway.  Shipments for the marketing year to date now total 404.5mbu, up 17% from a year ago and leave ample room for the USDA to increase their soybean demand estimate.  Corn and wheat shipments were below expectations, but almost had to be given the sole focus on shipping soybeans at this time.

As noted above, meal spreads are seeing weakness this morning with the SMZ/SMF off $1.60 at $14.90, and well off the 10/29 highs of $26.10.  There continue to be no soybean deliveries against the November contract, and the SX/SF has kissed even money this morning in response.  The SF/SH jumped to -1.75c yesterday, but has backed off to -5.00c this morning.  Not much change to Gulf or PNW soybean bids yesterday, although corn bids off the PNW continue to ease lower with spot shuttles showing +82Z while December sits at +90Z and January at +102H.  An 8c carry in destination export values for one month’s time isn’t bullish.  HETX values remain depressed as well at +75Z spot and +80Z for December.  Shuttle freight reflects same with BNSF and UP cars less than week ago values.  The drop in oil price should slow demand for cars out of the Bakken and help keep freight costs lower.

 

Bottom line: Charts have taken on a negative tone in wheat and soybeans, while corn hasn’t done a significant amount of chart damage yet.  Specs have done a large amount of buying in Ags as of late, and may have pushed the largest amount of short covering we’re going to see.  Focus will shift to the USDA estimates next week, even if it isn’t going to be the final word on corn or soybean supplies and demand.  Producers have been given a big marketing opportunity during gutslot harvest.  Has it been used?

 

Good Luck Today.

HPC 11-4

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.

 

 

11/3/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:40am: Dollar Index up 0.2320 at 87.1490; Euro down 0.00300 at 1.25000; The Yen is off 1.25% and the Russian Ruble is down 3.40%; S&P’s are down 3.75 at 2007.75; Dow futures are down 38.00 at 17,273.0; 10-yr futures are up 0.07%; The Nikkei closed up 4.83% at 16,414.00; The DAX is down 0.56% at 9,274.86; Gold is down $0.10 at $1171.50; Copper is up $1.80 at $306.50; Crude Oil is up $0.34 at $80.87; Heating Oil is up $0.0127 at $2.5236; Paris Milling Wheat is up €0.25 at €172.50/MT.

Two sided equity trade around the world last night as Asia opened up sharply higher, led by the Nikkei, on the still surprising news the Bank of Japan will expand its monetary stimulus efforts by 10 trillion yen.  Stock have slipped lower, however, as data showed manufacturing data in the Eurozone slipped lower in October to 50.6 from an initial estimate of 50.7.  Of the countries in the poll, Ireland performed the best with a reading of 56.6, while France was among the worst performers with an index reading of 48.5. Dollar strength is a feature this morning with the basket rising to 87.4000 at the overnight highs to set a new high for the move and highest trade since June 7th, 2010.  Aiding in the Dollar strength is the Yen getting fleeced, and while not in the Dollar Index basket, the Russian Ruble is touching all-time record lows against the Dollar as well around 43.23 on capital flight tied to Western sanctions.

A band of showers is moving across South Dakota this morning with rain and snow mix, while NE/IA/MN/ND see scattered activity.  The next 3-days should see heavy rain activity fire up in the southern plains and southern Midwest down into the Gulf states with totals as high as 2.50” in OK, parts of TX and AR.  Some of this storm will reach up into the ECB, but the central and western belt should be mainly dry the next week.  Weekend NOAA maps are very divergent on temperature as split right down the middle of the continent we have much above normal temps to the west and below normal temps to the east.  The entire lower 48 should be on the below normal side for precip bit the temperature anomaly hangs around through the 8-14 day.

 

Weaker from the overnight open in the Ag markets as we begin the month of November.  At times, wheat tried to be independently positive, but the weight of row crops appears to be proving to much, even though Paris Milling Wheat is firmer this AM.  The real focus this week is going to be the tail end of harvest and the accompanying yield reports, cash soymeal and soybean basis, and the technical follow through after the five week winning streak corn, soybeans and wheat have posted.  As discussed last week, the support for the complex rally has its origins tied in the rail freight market, and those difficulties are unlikely to be fixed overnight.  Couple this with slow farm selling through the end of the year, and the heightened price environment could persist a bit longer.  There is plenty of supply, but available supply is an entirely different animal.  Private estimates for the November WASDE will also be out this week.

First on the topic of rail logistics, the Surface Transportation Board recently required all US rail roads to submit weekly performance reports centered around the movement of grains to track the various companies this fall.  As would be expected, the problems lie with two carriers in the east and two carriers in the west.  Beginning first in the east, the Norfolk Southern railroad showed average train speeds for grain units at 17.7mph for the week ended 10/29, which is about in line with the speeds of its other trains.  The dwell times are where NS really falls behind with average dwell times for grain train at 63.29 hours vs. all other unit trains at 44.12 hours and coal trains at 9.09 hours.  On the CSX, trains just don’t move that fast with average train speeds at 15.4mph for the last week vs. 16.2 for coal, 17.9 for crude oil and 17.6 for ethanol.  Dwell times on the CSX for grain trains averaged 22.8mph compared with the NS at 63 hours, but are still high vs. the other unit trains on their system at 19.2mph.  In the West, the BNSF has fairly decent performance indicators with grain train speed at 19.6mph and dwell times around 16.6 hours, but unfilled car orders number 5,950 with trains an average of 12.5 days late on placement.  3,509 of these unfilled orders are in North Dakota.  Train speed and dwell times are much, much lower for Crude Oil.  The CP railroad shows 2,993 car orders unfilled with 2,529 in North Dakota.  Car placements average 1.92 weeks across their system.

The point of the aforementioned is to highlight the serious issues facing grain movement at current and moving forward.  Also, these issues aren’t likely to be resolved in the next reporting week, meaning the support underneath our markets should persist.  What’s likely to manifest itself as we’ve seen earlier this year is higher destination basis and weaker origin basis paid to the farmer as rail freight eats out a bigger spread between the two. Watching soymeal and soybean basis for clues as to improving rail performance will be key in coming weeks.

Switching gears to the wheat market, it would appear the largest global wheat supply estimates for the year have been witnessed.  Late last week, production estimate were starting to be reduced for Russia, Kazakhstan and Australia by both private forecasters and USDA attachés.  In the case of Russia, the 14/15 wheat crop is generally seen down 1.0-1.5MMT from the USD’s latest estimate of 59.0MMT due to an onslaught of wet weather and snow in northern regions.  For the 15/16 crop, 46.5-50.0MMT estimates are being tossed around, well below this year’s crop, as dryness as poor establishment curb winter wheat seeding.  Kazakhstan has experienced similar finishing weather to Russia.  In Australia, boots on the ground are generally grouping the wheat crop around 21-22MMT vs. the USDA’s latest assessment of 25.0MMT.  Throw in the multitude of quality issues around the globe, and one can see how interesting protein and class spreads could get later this winter.  While on wheat, it will be worth watching Ruble weakness as this should continue to make Black Sea wheat more competitive into MENA destinations.  The next GASC tender will be watched closely.

Ethanol calendar spreads have been firming as of late with the ACX/ACZ pushing to a new contract high of +0.095c on Friday, a huge recovery from early October lows around parity.  Ethanol stocks have been drawn down significantly in recent weeks, while production has slowly rebounded due to a better margin structure.  Given static gasoline demand as of late, it likely means ethanol exports are on the up and up, especially as US ethanol prices have slipped below Brazilian sugar ethanol prices.  The improvement in margin structure should keep plants bidding for corn.

 

Bottom line: A little back and fill today as we reassess haves progress this afternoon, as well as the ongoing logistical complications with moving supply from origin to destination. Private yield estimates will be out this week in the ramp up to the November WASDE.

 

Good Luck Today.

 

WSJ Oil 11-3

 

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.

 

 

 

SRW & HRW Delivery Stocks Discussion

In recent weeks, there has been a fair amount of discussion about the forward curve of both the Chicago and Kansas City wheat markets, and calendar spread expectations moving forward.  While market conditions can and will change, the discussion below attempts to shine a bit of light on the subject, hopefully framing the conversation against the correct back drop.

 

Beginning first with SRW, it is worth noting the all-wheat stocks as of September 1st for the major SRW producing states of Illinois, Indiana, Ohio, and Michigan.  As one will quickly notice, the combined wheat stocks as of September 1st for the select states of 173.3mbu are the lowest since 2008, although in line with levels witnessed in the early 2000’s.  Still, wheat stocks are the lowest in six years.  More importantly, however, has been the composition of that wheat as of September 1st.

 

IL-IN-OH-MI Wheat Stocks 10-30

 

It has been widely known the soft red wheat crop experienced difficult finishing weather this past summer, resulting in less than desirable quality in a large percentage of the crop.  But where this has really been visible is with calendar spreads trading at less than 50% of full financial carry for the WZ/WH, WH/WK and WK/WN despite the stocks/use ratio sitting in excess of 50.0% according to the USDA’s latest assessment.  Yet, when digging through the most recent deliverable stocks data from the CME, one gets a clearer picture of just what is sitting in those delivery warehouses.  The first chart below shows total delivery wheat stocks of SRW as of 10/24.  As one will notice, total wheat stocks are on-par with last week and a year ago.  Individual elevators show changes week-to-week and year-to-year, but overall supplies are about even.

Total Delivery Wheat Stocks SRW 10-30

 

The next chart, however, breaks down deliverable supplies vs. non-deliverable supplies, and paints a much clearer picture of what the “supply of last resort” is actually comprised of.  As one can see from the chart below, the amount of deliverable grade SRW in delivery warehouses is down 14.479mbu from a year ago, or 24.4%.  What’s more concerning, however, is the fact non-deliverable supplies are up 16.052mbu, or 275% from a year ago.  Simply put, deliverable supplies meet quality specs and non-deliverable don’t.  If wheat doesn’t make delivery specs, it surely won’t meet milling specs or export specs, resulting in said bushels heading for feed channels or being blended off slowly with good quality wheat.  The higher incidence of vomotoxin in this year’s wheat crop is visible in the composition of delivery warehouse stocks.  Owning delivery warehouse certificates or owning futures spreads becomes more valuable therefore, as acceptable minimums have to be met.  This is not the sole reason SRW bids are firm or spreads have been firm, but it is definitely part of the foundation.

 

Deliverable vs Non-Deliverable SRW 10-30

 

Switching gears to HRW, the next chart below shows combined Kansas/Oklahoma/Texas wheat stocks as of Sept 1.  At 413.4mbu, they are the smallest since 2006, and only above 2006 by 1.2mbu.  They are the second smallest since 1996.  Further, as the last chart shows, deliverable supplies in CME warehouses in Kansas are 26.193mbu below a year ago, or 30.1%.  The CME doesn’t have historical data for deliverable supplies, but I’m assuming it would show a similar situation to Sept 1 stocks.

TX-OK-KS Wheat Stocks Sept 1 10-21

Deliverable Stocks of HRW 10-30

 

In essence, deliverable supplies, like mentioned above, are the supply of last resort.  In both SRW and HRW, deliverable grade supplies are sharply below a year ago.  In the case of SRW, the supplies of last resort contain a larger than normal percentage of non-deliverable wheat.  None of the aforementioned is the sole reason for inverted spreads, basis strength, etc., but it sets the stage against a much different background than most traders realize.  Throw in the fact Europe, Kazakhstan, Ukraine, Brazil and Canada all have quality issues of their own and one can see the supply of milling quality wheat is much different than the global supply of wheat.  This won’t affect futures’ direction, but it will affect spreads and basis.

Keeping in mind the aforementioned when analyzing the wheat futures and cash markets could prove worthwhile in the weeks and months ahead.

 

 

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.

 

 

 

 

 

10/30/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.2220 at 86.2130; Euro down 0.00620 at 1.25880; S&P’s are down 8.00 at 1964.25; Dow futures are down 57.00 at 16,867.00; 10-yr futures are up 0.07%; The Nikkei closed up 0.67% at 15,658.20; The DAX is down 1.39% at 8,956.69; The IBEX-35 is down 2.21% at 10,021.80; Gold is down $19.40 at $1205.60; Copper is down $3.70 at $306.75; Crude Oil is down $0.75 at $81.45; Heating Oil is down $0.0204 at $2.5031; Paris Milling Wheat is up €1.50 at €175.00/MT.

The FOMC coming out with a more hawkish stance than expected is grabbing financial media outlet headlines since the yesterday afternoon announcement, propelling the US Dollar near recent highs for the move.  The main surprise from the FOMC minutes was that the FOMC significantly upgraded its view of the labor market, which effectively means a rate hike will be coming sooner than earlier expected.  The quote from the minutes was “Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.  On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing.”  Unemployment claims this week are expected to rise 2,000 to 285,000.  The US Dollar hit 86.4520 overnight, the highest trade since 10/6 and just below the highs of 86.7460 on 10/3.  Commodities are under a fair amount of pressure this AM.

A small shower moving across S-IA/N-MO, and some flurries in N-MN/WI are all that grace radar screens this morning.  A mostly dry Midwest outside of ND yesterday, and it is expected to remain that way through Sunday before moisture moves into the southern plains and southern Midwest by Monday/Tuesday.  Totals as of this morning, put a general rain across the entire state of OK with anywhere from 0.25-1.50” falling.  N-TX/SE-KS/MO will also see moisture which should benefit recently planted winter wheat with harvest efforts in the final stretch.  Wednesday-Thursday the system moves south and east with the rains intensifying over E-TX/AR/ with totals reaching up to the 2.0” mark.  Should be welcome.  No huge changes to extended maps with above normal temps still forecast the next 15-days while moisture should be below normal in the west and normal/above in the east.

 

After months of negative price action, turning the screens on to green numbers has taken some getting used to.  Strength in the Ag markets was again persistent overnight, although both soybeans and soymeal are well off their overnight session highs.  Wheat and corn are once again going along for the ride this morning, with export sales later this morning watched closely for any demand implications.  As mentioned yesterday, traders continue to try and pin a top on the soy complex, but the underlying reasons for the price strength aren’t going away anytime soon.  The supply of soybeans is as large as it’s ever been, but the eastern corn belt is finding out what the west has known for months/years: the US railroads aren’t equipped to handle the volume they’re trying to.  With back-to-back record harvest, surging domestic crude oil production, and a host of other industry needs all commanding power and freight, their simply isn’t enough power to go around.  Until the bottlenecks straighten out, or enough product gets imported from other origins, the hot cash markets will remain and futures will retain underlying support.

Before wading into anymore analysis, it is worth noting the CME Group did raise margins on soymeal futures by 33% to $2200 initial and $2000 maintenance for specs and to $2000 for hedge/members.  CME Group increases margin requirements during times of increased volatility and drops them in times of depressed volatility.  Occasionally, an increase in margins can spark a bit of a selloff as participants reject the idea of posting more margin for the same amount of positions.  That doesn’t seem to be taking place as of yet, but be aware the CME Group is paying attention to the rally.

A letter passed around yesterday expounded on some of the difficulties railroads such as CSX and Norfolk Southern in the east are having.  Turn times are being characterized as an “operation disaster.”  The BNSF in the west now has 350 unit trains dedicated to crude oil, which is a drain on locomotives and crews.  The bottleneck for trains passing west to east in Chicago is estimated to be around 3-10 days at current.  Most experts think the bottlenecks will persist another 12-18 months.  Lastly, with more ethanol moving by rail than ever before, we continue to add commodities which draw on available power and crews.  BNSF spot equipment stabilized at $1500/car against $2200/offers last night, while UP freight is $500/1400/car.  This has stemmed the PNW premium free-fall, but doesn’t suggest overt demand headed to the west coast either.  In a way, we’re experiencing a small version of the problems ailing China in that cash prices in northern growing areas are incredibly low compared with the record high prices in the south where grains are actually used.  Their problem is moving them efficiently from North to South, which usually winds up with imported grains being cheaper than domestic.  Hello China.

A Reuters article out yesterday afternoon focused on the increased option activity in the Jan soymeal options.  The chart below shows the open interest of various January put strikes compared with December 2014 put strikes from a year ago.  The point of the article and the graphic below is to shows the a) the ramp up in put buying on the rally as processors roll up their bearish protection on the rally, but also b) that producers expect the rally to push beyond December option expiration and are therefore using January protection.  Soymeal on the continuous chart is resting just below its 200-day moving average at 409.60, an indicator it hasn’t been above since January.  November soybeans are tangling with the 38.2% retracement of the 12.79-9.04 selloff at 10.47 with January doing the same at 10.54.  Still no sign of a bearish divergence in momentum on a daily scale.  Board crush margins have rocketed into new record territory with December at 206.8c/bu, followed by January at 158.8c and March at 102.3c.  There just still isn’t anything in cash or spreads which suggest the rally is coming to an abrupt end, although a formal letter isn’t likely to be sent out to all market participants either.

Switching gears to grains, thought it worth making note of the ramped up ethanol production witnessed yesterday in response to the better margin structure the past few weeks.  Weekly ethanol production increased 41,000bbls/day to 937,000bbls/day, the highest in 10-weeks, and well above the needed production level to hit the USDA production forecast.  Stocks also declined sharply, a bit of an anomaly, although also supportive.  Stocks declined 901,000 barrels to 17.039 million barrels, the lowest since mid-May.  Ethanol stocks are down nearly 10% over the last month, yet gasoline demand has been nothing outstanding relative to 2013 and the 5-yr range.  This could mean an ethanol export program has been ramped up, something we’ll have to watch Census data for.

 

Bottom Line: Eyes will be on the 7:30 export sales data for more evidence behind the recent rally, but the fact is animal feeders are armed with handsome margins allowing them to bid for meal they don’t have covered.  The soymeal export book is the largest on record by an incredible margin, and is pulling meal away from the domestic sector like never before.  Add in the fact rail transportation is stodgy at best with a delayed soybean harvest in areas which supply the southeast feed market and you can readily explain the recent rally.  Eventually, it should crack once double bought end users receive product, but this won’t be a universal event, and will be difficult to track.  Wheat is losing a bit of interest as fall seeded crops in the northern hemisphere head into dormancy, but outside the US conditions are less than ideal.  Can’t stress enough, corn is along for the ride and producers now have 14/15 contracts with a $4.00 handle on the for May and July.

 

Good Luck Today.

 

Soymeal Options 10-30

 

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.

10/29/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index down 0.0450 at 85.3610; Euro up 0.00050 at 1.27440; S&P’s are down 3.50 at 1976.25; Dow futures are down 11.00 at 16,925.00; 10-yr futures are down 0.04%; The Nikkei closed up 1.46% at 15,553.91; The DAX is up 0.65% at 9,127.07; The IBEX-35 is down 0.49% at 10,343.40; Gold is down $1.70 at $1227.70; Copper is down $0.20 at $309.10; Crude Oil is up $0.81 at $82.23; Heating oil is up $0.0273 at $2.5080; Paris Milling Wheat is up €1.50 at €171.00/MT.

Tepid outside markets following the surge in yesterday’s US equity markets as the focus falls squarely on the announcement following today’s FOMC meeting.  The Fed is expected to announce today it is ending its $4 trillion bond-buying program, or quantitative easing, but most investors will be curious if they shed any light as to when they might start raising interest rates.  It is also expected the FOMC will announce it plans to continue its program of reinvesting the proceeds of its portfolio in new securities purchases so that its balance sheet remains constant and does not start declining as securities mature.  The 30-yr mortgage rate fell another 5bp to 3.92%, a 1-1/2 year low, and bringing the 5-week drop to 31bp.  Refinancing is up according to MBA, although the drop in rates has not led to any increase in purchases.

Open Midwest weather this morning after yesterday’s band of showers worked through the southern and eastern corn belt.  Heaviest totals were seen in AR/N-MS/TN/KY/WV, with the main production areas of IL/IN mostly spared.  The Midwest should be mostly wide open through Saturday with the exception of a few small showers in E-MO/S-IL/S-IN, although better moisture chances move in around the beginning of the week. The map below shows the time period November 3rd-November 5th with heaviest totals obviously in the southern plains, MO and S-IL/S-IN.  Some harvest delays could be expected, although the recently planted HRW will welcome the moisture.  6-10 and 8-14 day maps keep above normal temps in place through November 11th, but the moisture track shows below normal precip over the Plains and WCB, but above normal precip for east of the MS-River.  This could end up being an issue for the remaining soybeans in central and eastern production areas.  The WCB should be able to be nearly complete with harvest by the end of this period.

 

Another day, another higher soy complex.  In similar fashion to last night, the soybean and soymeal market steadily rose throughout the night aside from a brief drop during the European open, but rallied back to hit new highs between 4:00-5:00am.  Every day for the past 3-4 sessions, price action has suggested diverging momentum, and traders have been quick to call for a blow-off or exhaustion top.  Yet, each morning we come in, price finds its way back towards recent highs.  The catalyst for the rallies in the complex can’t be undone overnight, which is probably the reason price has remained so resilient.  Rail congestion takes days and weeks to undo, not hours.  Crush plants need soybeans to be delivered before they can send out product.  The delays in Brazilian planting will keep buyers focused on US stem well into January, negating a fast start to the Brazilian shipping season like last year.  Argentine soymeal premiums have continued to work lower since Friday, which keeps product penciling into US-SE feed destinations.  However, any tonnage which may have occurred isn’t likely enough to move the needle yet.  The market is also feeling the effects of cash-flush farmers with ample storage.

First on the planting delays, Safras e Mercado reported the Brazilian soybean crop was 12% planted as of 10/24, up from 7% the week before, but down notably from last year’s 26% and 31% average. Top producing state Mato Grosso is 16% planted vs. 48% average, and second largest producing state Parana is 28% planted vs. 49% average.  Rain activity has increased, so planting should pick up, although progress out of the north is still a large concern.  As mentioned above, the real concern is the limited export offerings out of Brazil until the latter part of January and into February if timely planting doesn’t occur.

Market participants continue to focus on the amount of supply left to be harvested by US farmers, which admittedly is still rather large.  As of Monday’s crop progress reports, there remained a combined 9.0bbu of corn and soybeans left in the field vs. 9.4bbu having already been harvested.  This supply will need a home, and it is this thought which keeps bears calling for weaker markets ahead.  As export inspections have showed recently, however, the soybeans at least, have a home.  Just specifically off the PNW, there are 70mbu worth of ships either loading or waiting to load soybeans.  In an aside on corn, there is only 1 vessel waiting to load with an additional corn/wheat combo vessel.  The program off the west coast is non-existent, and is part of the reason BNSF rail freight continues to trade weakly in addition to better turn times.  Rail freight going home last night was $1400/2000/car.

Corn isn’t the only soft market off the PNW, however, with spot soybean shuttles indicated at +150/157X for Oct/Nov against +160/160X a week ago, although November slots have bottomed a bit vs. earlier in the week.  CIF NOLA soybean premiums were called +118/122X for Oct and +118/120X for Nov, down around 3-4c vs. Monday markets.  In addition to softer basis, the SX/SF continues to trend weaker, sitting at -7.50c this morning vs. -5.25c 2-days ago.  However, Friday is first notice day, and there is likely some late rolling out of positions taking place which could distort cash influence.  The SF/SH remains fairly steadfast at -6.00c this morning, just off yesterday’s high at -5.50c.  Meal spreads also don’t suggest the top is in or that the world is ending with the SMZ/SMF at +20.00c this morning, down from yesterday’s +24.60 high print, but definitely high range.  Spreads should confirm when a top has been reached.  Board crush spreads also remain well supported with the December crush at +190.0c and the January at +140.5c.  A spread with this many moving pieces has  lot of volatility, but it looks as though on a continuous basis, we are in record territory for board crush.

Shifting the focus to the other commodity which is building a bull case, wheat markets continue to fly under the radar with slowly improving fundamentals.  In a Reuters article out yesterday, Ag Ministry officials in Kazakhstan continue to suggest supplies and quality will be down with their 14/15 crop.  Latest estimates put the wheat crop at 11.5MMT vs. 13.9MMT and the USDA at 12.5MMT.  In addition, the majority of the wheat is thought to be of 4 or 5 grade feed wheat.  Export ideas have dropped to 3.5MMT vs. 8.1MMT last year, which would be the lowest since 2004/05 if realized.  The USDA is still carrying 5.5MMT.  In addition, it is widely expected Kazakhstan will be an imported of Russian wheat to the tune of 0.5MMT instead of an exporter like usual years.  Russia should have the excess tonnage, but the gap between feed wheat and milling wheat around the globe is expanding.  Also, with the Russian Ruble trading down to all-time lows against the Dollar of 42.59, this should keep Russian wheat very competitive into major import destinations.

In the US, deliverable supplies dropped 2.4mbu in Duluth last week to bring total deliverable supplies down to 18.326mbu vs. 19.984mbu a year ago.  Minneapolis crept higher and stands at 4.967mbu vs. 4.426mbu a year ago.  Not much for changes in SRW stocks at 66.658mbu vs. 66.511mbu a week ago and 65.085mbu a year ago, although deliverable grade supplies remain sharply below a year ago at 44.790mbu vs. 59.269mbu. Non-deliverable grades are also well above a year ago at 21.868mbu vs. 5.816mbu.  There is a ton of off-grade wheat to store or blend this year.  HRW stocks up a pimple on the week, but still down 15mbu from a year ago which will need to be monitored as the year progresses.  No big changes in wheat basis yesterday, but the concern exists with spreads as the KWZ/KWH has now drifted down to -4.50c, off from recent highs of +2.00c and the lowest trade since 10/2.  Part of this decline has undoubtedly been due to rail freight as TX-Gulf premiums have eased also.  The spread weakness appears to be confined to HRW, however, as HRS and SRW spreads are steady better.  This is worth monitoring, however, as wheat can’t uncork a rally if spreads are dropping on a daily basis.

Ethanol production data out later this morning as the focus closes in on corn demand.  As one might have noticed above, bullish features for corn weren’t really mentioned.  There is plenty of corn left to harvest, basis levels aren’t strong, and another cut in acres needs to occur next year. Corn has very few bullish data points for bulls to hang their hats on at the moment, although that doesn’t mean it can’t go along for the ride.  Keep in mind, however, out of corn, soybean and wheat, funds are long only corn.

 

Bottom Line: top callers will be out again today in the soy complex, and today might be the day.  I’d prefer to watch bean and meal spreads for confirmation as well as a sharp reversal in meal basis both domestically and on the export front.  The market has provided an excellent marketing opportunity, and one which should be taken advantage of given the short-term nature of the rally catalysts.

 

Good Luck Today.

 

HPC 10-29

 

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.

 

 

 

10/28/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:35am: Dollar Index up 0.0930 at 85.5880; Euro down 0.00050 at 1.27070; S&P’s are up 9.00 at 1966.00; Dow futures are up 69.00 at 16,826.00; 10-yr futures are down 0.16%; The Nikkei closed down 0.38% at 15,329.91; The DAX is up 1.42% at 9,029.27; The IBEX-35 is up 1.51% at 10,349.20; Gold is down $1.30 at $1228.00; Copper is up $1.40 at $307.80; Crude Oil is up $0.48 at $81.46; Heating Oil is up $0.0090 at $2.4719; Paris Milling Wheat is up €3.00 at €168.00/MT.

Global equity markets are rallying today ahead of the Federal Reserve meeting this week at which the Fed is expected to end its long-running Quantitative Easing program.  The real concern, however, is when they begin to start raising short-term interest rates, which most believe will still be sometime in 2015.  Economic data in the US today will include October US Consumer Confidence which is expected to down a +1.1 point increase to 87.1, recovering a bit from the -7.4 point decline in September.  Durable goods orders for September are expected to show an overall increase of +0.5%, and an ex-trans increase of +0.5%.  This would follow the August report of -18.4% and +0.4% ex-trans.

Band of showers moving across the Midwest stretching from SE-OK to S-MI and bringing rain to all areas in between.  After that system, things should remain mostly dry for the central and western corn belt, while the southern plains and southern Midwest battle moisture a bit late in the 7-day period.  Temperatures from NOAA show the 6-10 and 8-14 day remaining well above normal throughout the period, although moisture will move to above normal status for the southern and eastern Midwest.  The 8-14 has an overall drier bias.  In general, temps will remain above normal through November 10th, while southern and eastern areas battle hit and miss moisture.  The WCB shouldn’t be impeded in their harvest efforts.

 

Soymeal remains the name of the game with that market up another 3.64% as of this writing, lugging soybeans and the rest of the Ag complex along with it.  The performance of soymeal over the month of October has been nothing short of astonishing, rallying from a low of $295.10 on October 1st, to a high of $399.80 this morning, a gain of 35%. The stalled pace of soybean harvest in the east, coupled with tight farmer holding of available soybeans, and poor rail performance, is causing cash soymeal offers to skyrocket when supply and basis should be the cheapest.  The sharp rally also shows the hand-to-mouth buying end users of all feed grains have been employing, and the lack of coverage on through the end of the month and probably the month of November as well.  Bears continue to want to talk about the surplus of soybeans which will be available “eventually,” or the amount of soybeans which the US will carryout in August 2015, but neither of those figures do any good to hungry hogs and poultry.  Add in the fact, the soymeal export program is the largest on record by a huge margin and the table is set for the price action we’ve seen.  Corn and wheat are simply along for the ride again today.

A quick note on soymeal technicals, the continuous chart shows meal having gone through the 50 and 100-day moving averages with the 200-day resting just overhead at $410.00.  The last time the continuous chart was above all three major moving averages was June 6th.  The December contract itself is already through all of these averages.  Encouragingly, momentum isn’t flashing a bearish divergence, and on-balance-volume continues to trend steadily higher, rising to 238,599 contracts, the highest level since April 16th, 2014.  The continuous chart has the 50% retrace of the $509.40-295.10 sell off at $402.30, which will be a key area overhead.  Managed funds have been working back into the soymeal market with the latest COT data showing them net long 37,573 contracts, the largest net long since 9/2/14, but a far cry from the 70-75,000 contract levels witnessed in April.  Funds are still wielding a 50,000 contract net short in soybeans, so the propulsion through the $10.00 handle is easily explained.  November soybeans have the 38.2% retrace sitting at $10.47 from the $12.79-9.04 selloff as a target ahead.  No momentum divergence as of this morning.

As would be expected, board crush is off and running this morning on soybeans with the December contract up 18.0c/bu to 195.5c, the January contract up 9.3c to 147.8c, and March up 4.5c to 105.0c.  The 5-month strip is calculating at 122.5c this morning, an incredible margin plants can lock in via futures, and cash margins should be even higher given soymeal basis trading where it is.  The point is, plants should have plenty of margin to bid up soybean basis in an attempt to originate soybeans, so basis could be getting friendlier in the days ahead.  Soybean meal spreads are confirming the breakout with the SMZ/SMH currently sitting up $4 at $19.90 after touching $24.60 earlier this morning.  Meal spreads should be an early canary-in-the-coal-mine to this move running out of steam, but so far cash and spreads are behind the rally.  The SF/SH continues to press firmer, although the SX/SF is less enthused.

As mentioned above, rail performance in the ECB has been a leading culprit to the cash move, and railroad statistics confirm same.  As of 10/24, average grain train speed for the CSX railroad had dropped to 16.0mph vs. 17.5mph the week before and 18.0mph two weeks ago.  The Norfolk Southern saw speeds increase slightly to 17.6mph from 17.3mph the week before, but is down from 18.0mph 2-weeks ago.  Dwell times have also been increasing with NS reporting average dwell times at 34.5 hours, up from 32.7 hours the week before and 31.4 hours two weeks ago.  CSX has watched dwell times go from 30.0 hours two weeks ago to 32.0 hours last week, to a slight improvement this week at 31.4 hours.  The trend isn’t good with train speeds trending slower, and dwell times mostly increasing during the busiest time of the year.  Until sustained improvement is witnessed in railroad performance, it is going to be difficult to squelch this cash led rally as end users wait for product.  This will perpetuate the rumors of South American soymeal working into the US-SE, but the futures board doesn’t seem too concerned with that this morning.

Getting to the actual fresh data from last night, the crop progress report, only adds a bit of wood to the fire given the progress to date.  Soybean harvest was pegged at 70% complete, which was in-line with expectations of 70%, but also means soybean harvest is over 2/3’s complete and we have yet to really feel the harvest pressure commonly associated with October and November.  Significant progress remains in the ECB with IL at 63% complete vs. 77% average, IN at 50% complete vs. 75% average, OH at 50% vs. 73% and MI at 44% vs. 73%, but the WCB is essentially done with SD/ND/MN all > 90%.  IA is 81% complete and NE is 87% complete.  Corn harvest was a bit behind expectations at 46% vs. 56% last year and 65% average.  ND/SD/MN remain the laggards at 22%, 34% and 41% complete, respectively.  Farmers will continue waiting until the crop is dry in the field before harvesting to avoid drying charges.

Adding support to wheat, and specifically SRW, is the winter wheat planting and emergence progress in the ECB.  National winter wheat planting was pegged at 84% complete vs. 84% average, but IL was just 41% complete vs. 75% average, IN at 67% vs. 75% average, OH at 72% vs. 80% average and MI at 77% vs. 85% average.  This is what is leading to ideas SRW planted average will be down 10-20% over a year ago.  As concerning is the fact emergence in IL is at just 18% vs. 42% average.  Move of the other ECB states are closer to average, but the first winter wheat condition rating of 59% was below ideas of 65% and below last year’s 61% G/E.  HRW states are generally above last year which shouldn’t be terribly difficult given last fall’s conditions.  Add in the fact quality of this year’s SRW harvest was sub-optimal, and there is a reason for the SRW balance sheet concern.  More on stocks in a separate post tonight.

One other note on wheat, production estimates continue to slip on Aussie production with Rabobank hitting the tape at 23MMT vs. the USDA’s latest estimate of 25MMT.  Informed handlers on the island claim it could be lower, closer to 21-22MMT.  This should be adding underlying support to the market, although quality of said production will be about as important given the quality downgrades being witnessed around the globe this year.

 

Bottom Line: Soybeans and meal could be entering an exhaustion phase with the current move, but getting in front of that runaway train would be futile.  End users with huge profit margins are pushing for product due to their uncovered nature, and that isn’t a trade one wants to be on the other side of.  Eventually, beans and meal should trade projected supplies, but projected supplies don’t do any good today.  Corn and wheat are along for the ride, although wheat is gathering evidence for being higher on its own.  Plenty of corn available and plenty left to be picked.  Not a lot of reason to be bullish corn, so producers need to be paying attention to the rally and rewarding it if needed.

 

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.

10/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index down 0.0260 at 85.81760; Euro up 0.00020 at 1.26550; S&P’s are down 5.25 at 1940.75; Dow futures are down 31.00 at 16,582.00; 10-yr futures are up 0.17%; The Nikkei closed up 1.01% at 15,291.64; The DAX is down 0.37% at 9013.87; The IBEX-35 is down 0.01% at 10,333.00; Gold is up $3.30 at $1232.40; Copper is down $0.25 at $303.75; Crude Oil is down $0.70 at $81.39; Heating Oil is down $0.0227 at $2.4637; Paris Milling Wheat is up €1.00 at €171.25/MT.

Tepid overnight movement in financial markets with most headlines covering the first confirmed Ebola case in New York City.  Economic data today which will attempt to distract investors will include new homes sales for September which are expected to fall by -6.8% to 470,000 unites, which would partially reverse the huge surge of +18.0% in August.  The supply of new homes on the market in August fell to a new 14-month home of 4.8 months, well below the long-term average of 6.1 months.  30-year mortgages fell to a 1-1/3 year low of 3.97% this fall, which should boost new home purchases.  In Europe today, the Eurozone manufacturing PMI rose by 0.4 points to 50.7 while the services PMI was unchanged at 52.4.  Both were above the expansion/contraction line of 50.0.

Wide open harvest weather today for the entire Midwest, and should remain so for the next 3-days until a disturbance moves back in on Monday into Tuesday for areas East of the MS-River.  Totals this morning don’t look like soakers, but all growing areas east of the MS-River to Appalachia could receive around 0.25”.  At that point, might just stall things for the afternoon.  Following that shot of rain, the 6-10 keeps things mainly dry south of I-80, but normal to above for precip north of that line.  The 8-14 looks very similar with normal to above normal precip for the northern 1/3 of the Midwest, although temps remain above normal for all of the Midwest throughout the period.  This will take us out to November 6th which should see massive harvest progress in the meantime.

 

After the buying surge on the close, prices opened up firmer last night before swooning a bit at the Dalian open.  Since European markets opened, however, our markets have recovered and are sitting on the highs for the session as of 6:30am.  The soy-complex has been the runaway leader this week, and meal is again this morning, but Chicago wheat is also up 1.60% and corn is posting 1.30% gains as well.  With SX beans above $10.00, weekly gains coming into the session are 49.50c, meal is up $28.30, corn is up 16.50c and Chicago wheat is up 19.25c.  As cash traders have pointed out this week, ECB rail performance has gotten especially poor, as evidenced by weak ECB corn basis.  With soy progress lagging in the east as well, the combination of poor rail performance with a temporary lack of meal is making it difficult to get soymeal to feeders in the south and east.  Again, while temporary, feeders are armed with large enough feeding margins to be able to bid up for available stem.  The market needs to be careful, however, as rumors of soymeal sales switches to SAM have been present all week, and the poor weekly export sales for soymeal may have been a leading indicator.

Funds remain short the soybean market, and have been covering positions this week.  Open interest is down 20,940 contracts, or 2.5%, on the week.  Interestingly, however, with the surge in buying seen yesterday, open interest was down only 649 contracts.  With the spreads remaining firm as well, and soybean basis not really showing sharp declines, it would almost seem to suggest there is commercial buying taking place as well. The sizable weekly soybean export sales of  2.167MMT caught the market off guard as the reporting week ended 10/16 saw no daily sales announcements as required for sales of 100,000MT or more.  As Reuters reported yesterday, some sales were not correctly reported and should have been announced via the daily reporting system.  Chinese buying accounted for 1.7MMT of the buying, and pushed total commitments to 1.204bbu, which accounts for 70.8% of the entire marketing year sales projection.  With board crush margins north of $1.00 through March of next spring, domestic demand is also pumping for any available soybeans.  If harvest cranks back up, and the laggards in the ECB push supply to market, it could take the starch out of things at least temporarily.

Corn basis has been on the defensive this week from the PNW to HETX to ECB trains.  CIF corn boats for prompt delivery have firmed during the week, however, the lone bright spot.  In the case of the PNW and HETX, harvest volume is beginning to increase, and a total lack of an export program off the west coast leaves the market only one direction to go, especially with cheaper freight values.  Spot shuttles headed west are worth +90/95Z vs. +125/115Z a week ago.  HETX is indicated at +80/85/92Z vs. +105/100/105Z a week ago.  Trains in the ECB were pegged around -26Z for spot, -14Z for Dec, due in large part to the focus on soybeans and the poor performance of rail.  This is having an especially negative effect on corn demand as it was reported by cash traders there is at least one, more than likely two, boat loading feed wheat in the United Kingdom bound for Wilmington, NC feed channels.

There have been rumors about cheap feed wheat trading into the US, and according to shipping lineups, the “NIN” is sitting at port in the UK with expected discharge on 11/4.  The ship has a gross tonnage of 17,928MT, which puts bushel amounts close to 658,674 bushels.  Values on the feed wheat are said to be around $185-200/MT, but UK isn’t the only stem penciling into the US with both Brazilian and French product also said the be making the calculation.  The map below shows the location of the “NIN” at current.  In looking at the spread between UK London Feedwheat futures and US corn, one will notice it had tightened to a low of around $42.46/MT on 10/14 before recovering to $52/MT this morning.  These aren’t historic numbers by any stretch, but would be the lowest spread values since July of 2013.  It is entirely possible this is a one off trade involving one or two feed wheat boats with US feeders hoping to prove a point to rail operators and upstream processors.  It also speaks to the amount of feed wheat in the aforementioned countries.  Too early to say this is a trend or a mirage, but one thing is for certain: feed grains being imported to the US are not bullish basis, spreads or futures.

One of the main focuses today will be November option expiration, especially with the soybean futures jumping strike levels like cracks in a sidewalk this week.  As of this morning, the ATM strike level of $10.00 shows 28,280 contracts of puts and calls open.  There is actually more open interest at the $10.40 strike with 31,372 contracts open, but 1000 seems like it will have the most available pin-risk heading into expiration.  Doesn’t look like the serial options in any of the other commodities will be a factor today.

 

Bottom Line: The futures rally this week has been incredibly impressive, especially during the meat of harvest.  Cash is singing a different tune in corn, however, and anytime feed grains are being imported into the US, especially with a record corn harvest being picked, one has to have pause.  Soybean and soymeal demand has been strong, but to think those markets are impervious is short-sighted. $10.00 soybeans with the carryout level projected is rich.  Still, funds are short and short and intermediate term trends are up. Don’t forget to reward rallies, especially if yields are above average.  Expect volatility today

 

Good Luck Today.

 

NIN Shipping Location 10-24

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.

 

 

 

10/23/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index down 0.0200 at 85.7210; Euro up 0.00190 at 1.26670; The Russian Ruble is up 1.25% to 41.7188; S&P’s are up 8.50 at 1933.50; Dow futures are up 56.00 at 16,481.00; 10-yr futures are down 0.11%; The Nikkei closed down 0.37% at 15,138.96; The DAX is down 0.22% at 8,920.90; The IBEX-35 is down 0.69% at 10,178.90; The Russian MICEX is down 1.07% at 1,359.44; Gold is down $6.60 at $1238.90; Copper is up $1.45 at $303.20; Crude Oil is up $0.21 at $80.72; Heating Oil is down $0.0046 at $2.4546; Paris Milling Wheat is up €1.50 at €169.25/MT.

Mixed economic data around the globe overnight as stocks tread water with the S&P up 53-handles on the week.  From China, the HSBC factory purchasing managers index rose to 50.4 in October from 50.2 the previous month, but the output sub-index slipped to a 5-month low.  The Markit Composite Purchasing Managers Index for the Eurozone rose to 52.2 in October from 52.0 in September.  In the US today, unemployment claims are expected to rise 17,000 vs. last week’s -23,000 claim decline.  Last week when claims fell to 264,000, the series notched a new 14-1/2 year low, hinting that the current amount of layoffs is the smallest since April 2000.  Also, the October US manufacturing PMI is expected to decline -0.5 point to 57.0m adding to the -0.4 point decline in September.  Crude oil is off $1.33 for the week and is working on its fourth weekly loss in a row, having erased $14/bbl in a month.

A band of showers stretching from E-TX to WI is moving across the US this morning, with activity heaviest in E-KS and N-IA.  Most of the WCB/Northern Plains have seen rain in the last 36-72 hours, with heaviest amounts falling in E-NE to the tune of 0.50-1.00”.  This will pause harvest efforts momentarily, as will the showers this morning.  Once the current front moves through, however, mostly dry weather should be seen for most until late in the weekend when chances of showers get better for the Great Lakes Region.  Temperatures look to remain above normal through the 6-14 day period, while precip becomes split with above normal in the north and below normal in the south.  The 8-14 is more deliberate, showing above normal precip for almost all areas north of I-70.  This will impact corn harvest further in the North as soybean harvest gets wrapped up this week.

 

Mostly firmer Ag prices this morning following yesterday’s sharp reversals which left several ugly blemishes on soy complex charts.  The dramatic fashion in which the early session highs gave way to late session lows suggested the effects were more far-reaching than the Chicago futures space.  Cash market participants declared the Argentine farmer let loose on the rally yesterday, selling around 700,000MT of soybeans, the largest total in months following a lengthy hoarding period.  Also, it is estimated around 200,000MT of US soymeal export sales were either outright canceled or switched to in-house origins in SAM.  In addition, the US farmer sold soybeans against the $9.75-SX board, bending basis weaker at key crush locations.  The sharp reaction in soymeal spreads certainly adds pause after watching the SMZ/SMH hit $11.60, before dropping to $7.60 in the same session.  The drop in soybean open interest by 15,104 contracts also implies the early session rally was due to managed funds exiting short positions.  Soymeal open interest was down 4,861 contracts (-1.3%) yesterday, and is off 14,998 contracts since 10/15.  Still, it is mildly encouraging to not see a ton of follow through selling this morning.  However, November option expiration looms large tomorrow with the heaviest open interest still at the 1000-strike (34,463).  ATM 960-stike has 21,753 contracts open, while the 9000-strike has 31,685 open calls and puts.

While soy complex price action is definitely the most attention grabbing, wheat is grabbing headlines this morning.  Several media outlets have released stories in recent days talking about the pending cold snap for Russian wheat areas.  Temperatures were expected to drop to 18* Fahrenheit in Moscow and Volgograd today, and were expected to remain below freezing during the weekend.  While the temperatures are part of the equation, the dry conditions to-date have some analysts calling the wheat the worst heading into dormancy since 2009.  According to MDA, a weather advisory firm, some parts of Russia and western Ukraine have received less than 20% of normal rainfall over the last 45 days.  Many are quick to point out it is far too early to have any confidence about 2015 crop size, but conditions to date along with the looming cold snap don’t set the table for bumper FSU crops next year.

While in the same region, there is also concern about the remaining Kazakh wheat getting harvested, which is thought to be around 15-20% of the crop.  Traders have said much of what is left is under snow, meaning it will have to be harvested next spring and will undoubtedly reduce quality.  Kazakhstan is on the books to import 0.1MMT of wheat this year according to the USDA, but cash sources note it could be closed to 0.5MMT.  In addition, the USDA has Kazakh wheat exports at 5.5MMT which may also have to be reduced due to quality concerns.  It seems as though every time we turn around, another wheat exporter is talking about quality issues.  Again, quality will not lead to a futures rally, but it can and will affect basis and spread relationships.  Southern hemisphere production from Australia and Argentina should be of better quality, and should/could put the discussion to bed.  Still, overall feed/course grain supply continues to grow and will affect trade flows for months to come.  It is important as ever for farmers to grow high quality wheat, and as the last two years have shown in the US, they will be rewarded for it.

Worth noting amidst the volatility in flat price, calendar spreads are making moves.  The CZ/CH spread moved out to -14.00c yesterday, and is still sitting there this morning.  Using 2.0% interest, this accounts for around 83% of full financial carry.  Despite record production last year, the CZ13/CH14 hit -13.50c in early August before rallying to -6.25c by December.  Commercials or farmers with short December hedges to move out the curve should be paying attention and scaling out.  Despite the lambasting futures took yesterday, soybean spreads never really reacted and have the SX/SF at -6.50c this morning, the highest trade since September 12th.  Meal spreads reversed yesterday, but are trading firmer this morning.  In inter-market spreads, the December MW/KW spread is back to its losing ways, dropping to -34.50c this morning, near the lows since May with similar moves being seen in MW/W.

 

Bottom Line: Yesterday spooked out a lot of shorts as evidenced by the drops in open interest for both soybeans and soymeal.  Whether the short-covering event is over, whether the US and world farmers have sold enough for now, and whether end users have enough coverage are all questions we’ll get answers to in coming sessions.  Wheat seems to be building its own case for maintaining current price levels, if not adding a bit more premium.  We still have 50% of the corn crop to harvest and around 1/3 of the beans, however, so cash can still see weakness.

 

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.

 

 

10/21/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:20am: Dollar Index up 0.2240 at 85.1660; Euro is down 0.00590 at 1.27540; S&P’s are up 13.50 at 1913.50; Dow futures are up 88.00 at 16,420.00; 10-yr futures are down 0.10%; The Nikkei closed down 2.03% at 14,804.28; The DAX is up 1.50% at 8,848.11; The IBEX-35 is up 2.03% at 10,116.90; Gold is up $4.00 at $1248.70; Copper is up $0.75 at $299.55; Crude Oil is up $0.18 at $82.09; Heating Oil is up $0.0084 at $2.4940; Paris Milling Wheat is up €1.25 at €161.00/MT.

Global equities are higher today, taking China’s easing economic growth in stride.  Last night, China reported Q3-GDP growth of +7.3%, down from +7.5% in Q2 but slightly above estimates of +7.2%.  The +7.3% reading was a new 5-1/3 year low, and market participants everywhere are coming to grips with the fact China will never return to a +10.0% GDP growth story as it was in the past. Market consensus is that China’s growth will decelerate to +7.0%by 2015.  In the US today, September existing home sales are expected to show a +1.0% increase to 5.10 million, reversing some of the -1.8% decline seen in August.  Crude oil seems to be stabilizing around $80-82/bbls for the time being with support around $77-78/bbls, and resistance around $84/bbls.  The Dollar Index also appears to have put in intermediate highs and has instead moved into a congestion phase.

Not much changed about the weather since yesterday morning with another wide open harvest day for the Midwest before a small disturbance moves into the WCB/Central Plains Wednesday.  Rains are a tick lighter than forecast yesterday with heaviest totals falling in NE-NE/SE-SD/C-IA to the tune of 0.50-0.75”, although most areas will see totals under 0.25”.  Otherwise the Midwest will remain fairly quiet until the Northern Plains becomes a bit more active in the 6-10 day period with above normal precip indicated for ND/SD/MN/MT, and the 8-14 day expanding the above normal swath to include NE/IA/IL/IN/MO/KS.  Too far out to be sure on totals of any kind, but it looks as though moisture will pick up around the last few days of October.  Temps are expected to remain above normal throughout the 6-14 day period.

 

A little pop in the Ag markets today following yesterday’s weakness with the soy complex once again moving to the forefront.  At the overnight session highs, November soybeans were up 11c, but have eased off those levels since midnight.  Slowing Chinese economic growth will create pause, but the market also seems to be taking solace in the fact harvest is now over half complete and substantial harvest pressure wasn’t really felt.  In addition, demand keeps clicking, and could be argued needs to be ratcheted up from the USDA’s latest estimates.  Elsewhere, SRW cash at the Gulf continues to trade sharply higher, in-keeping with Z/H spread strength in general.  Lots, and lots of corn harvest left to bring in which looks as though it could stretch well into the end of November.  Outside market volatility has calmed, and traders have refocused on grain market supply and demand.

Crop progress out last night left corn conditions unchanged at a historically high 74% G/E with 93% of the crop rated mature.  Importantly though, only 31% of the crop is harvested vs. 38% last year and 53% average.  Typically, harvest doesn’t reach 90% until around November 20th, so plenty of time for farmers to bring the harvest in, but northern states have clearly been focusing on soybeans.  SD is 19% harvested vs. 45% average, ND 7% picked vs. 37% average, MN 16% picked vs. 47% average, IA 19% vs. 54% average, NE 28% vs. 45% average, WI 11% vs. 35% average and MI 10% vs. 30% average.  Big machinery can catch up in a big hurry, however.  Soybean harvest was pegged at 53% complete, near expectations for 55%, and vs. 40% last week, 61% last year and 66% average.  Northern states again made huge progress with SD now 88% complete vs. 77% average, ND 83% cut vs. 71% average, MN 85% complete vs. 81% average.  Compare this with IL at 37% harvested vs. 66% average. IN at 31% vs. 62% average, OH at 36% vs. 56% average and MI at 23% vs. 60%.

On wheat, winter wheat planting was estimated at 76% planted, up from 68% last week and vs. 77% average.  KS is 78% planted vs. 84% average, OK 84% vs. 78% average and TX at 71% planted vs. 69% average.  Progress in the ECB on SRW plantings remain slow with IL at just 22% planted vs. 59% average, IN at 37% vs. 57% average, OH at 55% vs. 63% average and MI at 60% planted vs. 75% average.  Because of the delayed planting in the ECB, acres are already being pegged down 10-20% vs. this past year.  Combined with Sept 1 SRW stocks in the ECB being down 18.5mbu, it would appear there is a bit of concern starting to grow about SRW supplies in the months ahead.  HRW stocks as of September 1st in KS/OK/TX are also down notably from a year ago, and the lowest since 1996.  Graphics will follow, but easy to see why KC continues to see spreads arc towards inverses.

While still on wheat, worth noting the sharply higher CIF trade yesterday with +130Z trading for spot supplies.  Given GASC tendered last night for Nov 20/30 slots, it will be very interesting to see how tender results come out.  The sharply higher CIF trade was probably a paper-short cover, but the trend in basis has been firmer unlike HRW and HRS.  The WZ/WH, however, is breaking below its recent range with trade down to -13.50c this morning, the lowest since October 2nd.  Cash sources said late last night Argentina had approved 500,000MT each of old crop corn and wheat export licenses.  Oddly, weaker FOB Argy basis had not yet manifest itself as of last night.  If this were to apply pressure, it would be more likely in HRW premiums than SRW, but something to monitor nonetheless with Brazil reaching for US-DNS on last week’s export sales report.

The most recent COT data from Friday showed fairly decent buying by the managed funds in all of our markets pre and post-WASDE report.  A combined net buying effort of 52,381 contracts was witnessed across C,S,W,KW,MW,BO,SM, with the largest buying being witnessed in corn and Chicago wheat.  The gross commercial short position in corn is finally starting to increase, hinting at some farmer selling, although at 635,540 contracts, it is just now getting back to levels seen in August.  Farmer selling has picked up in soybeans as well with the gross commercial short increasing to 318,604 contracts the largest since June 10th, but the commercial position remains a net long thanks to big end user buying.  Buying by managed funds in Chicago wheat, but overall positions aren’t all that changed.  Still healthy short positions deployed in both Chicago and Kansas City.

A quick note on ethanol prices, spot month ethanol futures have recovered nicely off the lows with the heavy selling pressure in energies subsiding.  After hitting $1.432 on October 2nd, prices have rebounded 17% to $1.695 this morning.  The $1.40 area has acted as support many time since 2007 with several tests and re-tests throughout that time.  The recovery in ethanol futures should alleviate some of the margin compression witnessed in recent weeks at ethanol plants, possibly allowing weekly grind to climb a bit higher.  Along the same lines, 17 ethanol delivery tickets were canceled in Argo last night.

New contract highs were witnessed in SMZ/SMF and SMF/SMH yesterday, with strength continuing this morning.  Soymeal failed at downtrend resistance near $335-338 last week, and the former-support turned new resistance at $340 from the July-September congestion looms just overhead.  Price needs to take out both levels to have a legitimate shot at a sustainable rally higher.

 

Bottom Line: Mixed start, but plenty of reasons around this morning to be wary about pushing to the downside including soybean harvest hitting the back half, sharply better CIF-SRW numbers, improving product pricing on corn, and a major wheat tender still pending.  Our markets are feeling more comfortable at these levels by the day, and while a retest of recent lows could still occur in November, as has happened many times, a steady string of better yield reports will be needed.

 

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.

 

10/20/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:35am: Dollar Index down 0.0360 at 85.0740; Euro up 0.00110 at 1.27890; S&P’s are down 4.25 at 1876.50; Dow futures are down 93.00 at 16,214.00; 10-yr futures are down 0.05%; The Nikkei closed up 3.98% at 15,111.23; The DAX is down 1.52% at 8,715.31; The IBEX-35 is down 1.03% at 9,854.60; Gold is up $4.10 at $1243.10; Copper is down $3.20 at $297.15; Crude Oil is up $0.24 at $82.30; Heating Oil is down $0.0043 at $2.4933; Paris Milling Wheat is down €1.25 at €158.75/MT.

European equities are leading the world lower again today with the Stoxx Europe 600 dropping to the lowest level of the year as part of an eight day losing streak, the longest in 11-years.  Investors in Europe seem to believe the monetary stimulus efforts by the ECB will not be enough to revive the entire continent. In addition, several European companies reported weaker than expected earnings, or cut earning’s forecasts.  Also keeping investors leery is the constant barrage of ebola headlines, the latest of which on Bloomberg reads “Ebola Outbreak Boosts Odds of Mutation Helping it Spread.”  If the disease becomes bad enough, it will affect air travel which will in turn begin to make its economic impact felt.  Not much for Economic data in the US today.

A few popcorn showers in the ECB, otherwise another dry start to the week for the Midwest.  As expected, there was little to no measureable precip across the entire Midwest during the weekend.  Some shower activity is expected beginning Wednesday for the central and southern plains, and extending into IA/S-MN.  Heaviest amounts should fall in E-NE to the tune of 1.00”, but outside of that swath, totals should remain below 0.50” in the plains.  The central and eastern corn belt will remain dry.  The 6-10 day maps keep recent trends in place with above normal temps for the entire Midwest, while below normal precip is the feature.  Same temperature outlook for the 8-14, although moisture becomes a bit more unsettled in with above normal precip expected north and west of a line from OKC to Columbus, OH.  Corn harvest has a long way to go in many areas of the Midwest.

 

Weaker out of the Sunday-night gate and continuing that trend this morning with weaker markets across all of the Ags.  The reversal which began Friday in our markets was a clue heading into the weekend that our managed money-short covering event may have run its course.  Looking back at the week, it becomes increasingly likely the strength witnessed was de-risking by managed funds given the volatility seen elsewhere across the financial space.  Managed funds continue to wield large net short positions in both Chicago Wheat and Soybeans, the front-runners for the strength last week.  In addition, basis or spread strength in corn and soybeans was absent from the rally, a sign this was short-covering.  SRW seems to be the lone market with basis strength, and while spreads have trended firmer, the WZ/WH is at the lower end of its recent range at -12.00c this morning.  The focus today will be crop progress after the close and how much work there is left to do following the rain events last week.  If outside markets settle down this week, harvest resumes and our markets are reexamined, renewed pressure is definitely the path of least resistance.

Freight markets were weaker to close the week with stalled harvest activity, and elevators more willing to pile in the WCB than load expensive freight.  Also, with crude oil breaking below $80/bbls, many of the wells in the Bakken are said to be nearing a breakeven price which should slow the demand for outbound transportation.  At any rate, rail freight dropped to $2250 bid, offered at $3000/car, down from $4000/5000 a week ago.  Barge Freight also fell on the week with IL-River values called 833% vs. 892% a week before and 625% a year before.  Freight values should stabilize with a resumption in harvest activity this week, although given current CIF bids, it is still more profitable to store grain until Nov/Dec than load barges and send them to NOLA.  The direction of crude oil moving forward could also have a big impact on rail demand in the Bakken, possibly allowing grain companies to bid more competitively for power.

One other note on trains, it was interesting to note in a weekend newsletter published by a prominent mid-south researcher the improving performance by the CP railroad, but the continued lack of performance by the BNSF.  In the latest reporting week, BNSF reported an average train speed of 19.6mph, compared with 21.8mph for the same week in 2013 and 22.3mph for the same week in 2012.  Conversely, the CP reported average train speeds at 20.6mph vs. 14.4mph in mid-March.  Also, dwell times have increased for BNSF and decreased for CP.  The point being is that while CP’s performance has improved with improved weather since the winter/spring of 2014, BNSF has not, implying their largest issues were not weather related but instead volume/power related.  Could mean improved performance with a cheaper cost of crude oil, but something to monitor nonetheless.

Late news today, but worth noting the 20,000MT of HRS sales made by Brazil on last week’s export sales report.  This came as a bit of a surprise to some, in part because Brazil and Argentina both have larger crops y/y.  However, as with most countries this year, quality appears to be a problem with Brazil once again.  Also, the political uncertainty and reliability of Argentina may force Brazil to remain a quality buyer of US wheat for longer than they originally thought.  As the chart shows below, export sales to Brazil are behind a year ago, but still well up from the 5-year average.  Quality appears as though it will retain its premium for the duration of the marketing year, so farmers with said quality should remain in the driver’s seat.  Worth noting, however, is the fact SRW basis was the only wheat class with firmer export values w/w.  HRW at the TX-Gulf as well as off the PNW was off 10-20c, and spot floor values for MPLS were weaker w/w.  Spreads and basis aren’t exactly moving in the same direction, which can’t go on forever, and is more than likely transportation related to a certain degree.

Weekend showers in Brazilian coffee areas were light and scattered as expected, but a slow increase in rainfall potential is expected in coming weeks as evidenced by coffee’s incredibly weak performance the last several sessions.  Including today’s 5.4% losses, coffee is off 11.6% from the October 13th highs as weather patterns have slowly changed.  The reason coffee is mentioned here is it probably a safe precursor to soybean planting being resumed and soils being recharged for the Brazilian growing season.  While the soy weakness the last couple of sessions can’t be attributed solely to Brazilian rainfall patterns, it is certainly not a bullish feature.  Coffee may continue being a good market to watch in terms of soybean related weather patterns heading into the growing season.  Updated % of Normal Rainfall totals for Australian growing areas continue to paint a drier than wanted picture.  The six reporting stations in Western and Southern Australia as well as Victoria all show 25% of normal or less precip for the period October 1-18.  Queensland sits at 44-66% based on the two stations there, while NSW is rather varied.  Some severe weather moved through growing areas over the weekend as well with pictures of flattened barley and wheat making the rounds on social media.

 

Bottom Line: Weaker markets as volatility calms and selling pressure resumes with another wide open week of harvest for most of the Midwest.  Demand has picked up via export sales in recent weeks, but it doesn’t seem like our markets want to rally too far, too fast and risk losing recent buying activity.  Farmers remain undersold, and will help to cap any serious rally activity.  Still, chart action behaves as though seasonal lows have been set, and it is very possible the biggest carryouts of the year have been posted.  Basis and spreads, basis and spreads.

 

Good Luck Today.

 

Brazil Export Sales 10-20

 

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.