Outside Markets as of 6:25am: Dollar Index down 0.0750 at 93.9160; Euro is up 0.00070 at 1.14300; S&P‘s are up 14.00 at 2044.00; Dow futures are up 97.00 at 17,665.00; 10-yr futures are up 0.06%; The Nikkei closed down 0.98% at 17,504.62; The DAX is down 0.13% at 10,897.22; The IBEX-35 is down 0.64% at 10,510.10; Gold is down $3.90 at $1260.60; Copper is down $5.10 at $254.00; Crude Oil is up $.70 at $49.15; Heating Oil is up $0.0179 at $1.7845; Paris Milling Wheat is up €1.25 at €187.75/MT.
The incredible volatility in crude oil continued yesterday with spot month futures dropping $4.60/bbl by the close to erase the previous day’s $3.48/bbl gain and more. www.sentimentrader.com published an article last night looking at the volatility in crude oil compared to other major bottoms in crude in the past. Over the last 30-days, crude oil has witnessed three days with 3-standard deviation moves (7%). This is well short of the major bottoms witnessed in 2008 and 1986 in which they saw 11 and 10, respectively. Still, this sort of whipsaw activity is consistent with a larger degree bottom, although still probably premature to conclude that as the case. Crude oil inventories in the week ended 1/30 rose by 6.33 million barrels to 413.06 million barrels, much higher than the +3.70 million barrel build estimate. Stocks at 413.06 million barrels are another new record going back to August 1986.
The band of snow heading towards the East coast and dumping snow along the way looks to finally be dissipating over the Atlantic. Moisture the next 3-days will be confined to the Dakotas/MN/MT and the Canadian Prairies. Although, with the warmup on tap, uncertain as to how this moisture will fall. The temperature dichotomy will remain in place the next 15-days with above normal temps west of the MS-River and below normal temps east of there. Moisture will also be a mixed bag with much below normal in the US-SE, but above normal over the Great Lakes and Northern Plains. Hard to find a forecaster who doesn’t call current weather in SAM nearly ideal so expect crop ideas there to hold or get larger. Corn conditions in Argentina are said to be excellent.
In a similar fashion, although much less volatile, one could say the grain markets are exercising very choppy trading behavior which can be consistent with a near-term bottom. All three of the major Ag commodity markets have posted reversals from the previous week, or have taken out the previous week’s highs, some of which have occurred at major Fibonacci retracement and progression levels. More than anything, it feels as though our markets are still subject to money flow in the near-term while price tries to find the sweet spot of where the US/SAM farmer turns a palms out seller, and where the natural consumptive demand rests. US corn has a ton of competition into Asia from Ukrainian maize, US wheat is not close to connecting on MENA business and the trade flows have slowly, but surely, shifted from the US to SAM on soybeans. When the aforementioned happens, we turn inward. Ethanol grind is still strong while livestock margins have slipped notably. Domestic wheat basis remains strong, although tied more to protein and quality considerations. Soy crush margins are strong and meal basis is above delivery equivalence. All of the above looks like a holding pattern to this analyst.
Ethanol production in the week ended 1/30 finally saw the pullback many have been waiting for with per day production pegged at 948,000bbls/day vs. 978,000bbls/day the week previous. This is the lowest production total since early November, but importantly, still well above the 908,000bbls/day needed to hit the USDA’s 5.175bbu corn demand for ethanol estimate. Despite the pullback in production, stocks continued to climb, which may be the more important headline. Stocks rose 355,000bbls to 20.986 million barrels, the highest since June 2012. Fortunately, RBOB has moved backed to a premium over ethanol for spot month out through August. At 6c a gallon for spot month and 28-29c a gallon through the rest of the curve, some discretionary blending might actually come back to the ethanol sector which is what the stocks situation needs badly.
StatsCan also released their stocks of principle field crops as of December 31, 2014 yesterday, coming in at or slightly above expectations. Total wheat stocks as of 12/31 totaled 24.818MMT, down around 13.5% from 2013 but right in line with expectations of 25MMT. Stocks of canola totaled 11.1MMT vs. the average trade estimate of 10.7MMT, but down from last year’s 12.4MMT. Stocks at 11.1MMT would still be the second largest on record. Nothing here to really move the needle, and I think the larger theme to focus on is the continued lack of Canadian wheat exports to the US through December. Through Dec, exports to the US are down over 50%, despite many thinking the weak Loonie would support increased movement south. This will have to be monitored in coming months to gauge export velocity as it relates to total US imports.
CIF NOLA SRW premiums continued to ease yesterday, but barge freight slipped faster, keeping delivery economics well above gross DVE. The upper and lower-OH River Valley remains 18-26c above DVE for Feb, 23-30c above for Mar, 25-32c above for May and 3-10c above for July. FOB Toledo rail bids were whispered around +30/35H and Chicago around +20/25H, both above gross DVE. Still no reason to turn bearish WH/WK or WH/WN at current levels given aforementioned basis bids. The index fund bearspread roll will get underway tomorrow, so be aware of drive-by weakness from index flows. A lot of chatter yesterday about Egypt agreeing to use $100 million in US grant money to buy American wheat, with payment made in Egyptian pounds. None of it was enough to get algos going, and obviously CIF NOLA premiums didn’t exhibit any undue influence. Seemed to be a lot more confusion about the article than clarity, especially given suspect quality of this year’s old crop SRW. Some posited it will be for new crop slots, others suggested US-HRW could be in the mix. Will continue to watch headlines for any change.
Another feature worth pointing out has been the continued downward assault on hog crush margins. Board spreads hit contract lows for the G, J, N and Q contracts yesterday, and the chart below shows front-month rolling hog crush at the lowest levels since April of 2013. As one will notice in the chart, much better hog crush margins have been present for much of 2014, and odds are high integrated hog feeding operations took that opportunity to forward hedge. Many think attractive margins were locked in out through June 2015. This should minimize the impact of the reduced margin structure, but it is still important to keep in mind for forward projections.
Export sales out momentarily. Wheat seen at 250-650TMT, corn at 700-1,150TMT, soybeans at 200-600TMT, meal at 120-300TMT and soy oil at 5-20TMT.
Bottom Line: Our markets seem to be settling into a tighter range, exhibiting the choppiness commonly associated with at least an intermediate term bottom. Farm gate movement has been better this week, but by no means heavy. Many think the US farmer is behind the 8-ball on marketing, but as of February 5th, he doesn’t seem to be any big hurry to change that situation.
Good Luck Today.
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