Outside Markets as of 5:55am: Dollar Index up 0.0450 at 81.4770; Euro down 0.00060 at 1.33870; S&P’s are down 11.25 at 1953.50; Dow futures are down 86.00 at 16,735.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.16% at 15,620.77; The DAX is down 0.92% at 9,505.87; The IBEX-35 is down 1.77% at 10,744.10; Gold down $0.10 at $1296.80; Copper unchanged at $324.15; Crude Oil is down $0.72 at $99.55; Heating Oil down $0.0117 at $2.8852; Paris Milling Wheat down €2.75 at €172.75/MT.
Europe is leading global shares lower this morning as fresh fears about Portuguese lender Banco Espirito Santa crop up ahead of tomorrow’s unemployment report in the US. BES shares sank 40% after they reopened after a two-hour trading suspension earlier this morning following the company reporting a record net loss for the second quarter. Other companies also reported weak quarterly earnings in Europe, including German companies Adidas and Deutsche Lufthansa. Also rattling companies this morning is news Argentina will default on $29 billion worth of bong payments after missing interest payments of $539 million yesterday. 51 companies in the S&P 500 report earnings today, and unemployment claims are expected to show a 16,000 claim gain to 300,000. Last week’s decline in claims to 284,000 dropped claims to the lowest in 8-1/2 years, which means the pace of layoffs is the lowest since February 2006. Market still looking for 231,000 jobs added during the month of July on tomorrow’s unemployment report.
More rainfall across the southern plains this morning with a mostly dry Midwest. The latest models from NOAA this morning keep things mainly dry the next 5-days, with the advertised moisture being pushed back until mid-week next week. In fact, TX/OK/KS/MO/NE/IA aren’t expected to see anything, with only light chances for the Northern Plains and WCB. The much awaited rainfall has been pushed to Wednesday/Thursday of next week with decent accumulation expected in most of IA/S-MN/E-SD/E-NE. This will still leave plenty of areas dry for the month of July and heading into August. Extended maps continue to get gradually better for the WCB and Northern Plains in the 6-10, but no game changer this morning. Temperatures are still expected to be below normal with moisture above normal for all areas except ND/MN/SD/N-IA.
Slightly weaker markets to begin the day today, although the real weakness is being witnessed in Paris Milling Wheat which is down 1.71% this morning. Compounding this weakness is the fact the Euro is a tad weaker this morning which should be supportive, but charts point toward the milling wheat contract heading for June 2009 corrective high support near €165/MT. Solid corrections are being witnessed against US wheat contracts this morning, and UK London Feed Wheat is also down over 1.70%. In addition, the London feed wheat/Paris Corn spread is making new lows for the move down to $11.65/MT this morning, the lowest level since July 2013. Based on the aggressive offers out of the Black Sea, and pressure in Parisian markets, it would appear global wheat crops aren’t done getting larger. US hard wheat contracts are probably in good company in that category as well.
Row crops also continue to trade weakly, led by soybeans as the market reacts to the latest forecasts calling for rain in the WCB/Northern Plains. If the forecasts verify, and the WCB receives at least some moisture, the below normal temps should ensure a favorable pod-set. Commodity Weather Group released some preliminary data yesterday on the month of July, showing it was the 5th coolest July since 1895, while moisture wise it was between the 14th-23rd driest since that same year. This makes follow up August rains all the more critical to developing soybeans. Adding a wrinkle to things it’s also worth pointing out ahead of the August WASDE report that the average trade guess on soybeans has overestimated soybean production on the August report in 11 of the last 12 years, and by 113mbu in 2013. This raises the odds for a bearish surprise in corn, and possibly some stabilization in soybeans.
Rail basis took a hit yesterday with Gulf and PNW soybean rail bids down universally as the Gulf fell 5-6c, and the PNW eased 5c through January. Didn’t detect any big farmer movement which would coincide with the easing basis, but the topping of premiums likely suggests the string of big export sales for soybeans and meal is slowly coming to a close. That isn’t to say the recent string of business hasn’t been impressive; it has. NMY commitments for soybeans and soymeal now stand at records, and should give the USDA ample reason to keep both exports and crush for the 14/15 marketing year at or near record levels. Rail corn markets also eased yesterday with PNW premiums off 5c for Jul/Aug, while HETX was off 5c to +115U. Given the uniformity of the weakness in corn and soybeans, this looks transportation related with a possible easing in rail freight costs. Much more old crop corn to get rid of than old crop soybeans, however, and the month of July has witnessed steady “give-up” selling by farmers who missed the boat or completed a successful pollination period. Moving the old crop stocks ahead of small grains harvest will be a continued challenge for Northern Plains elevators.
Lots of discussion in recent days about the surge in soymeal exports, the drop in DDGs price, Soymeal/DDGs ratios, China and demand projections for 14/15. It has been no secret the Chinese don’t intend to be big players in the corn or DDGs import market for 14/15 if they don’t have to be. With their stance on MIR-162, it is safe to say Chinese import projections will be down substantially. But the largest buyer of soymeal for the 14/15 marketing year has been the unknown category, leaving a lot of speculation about who the eventual importer might be. Some theorize China is replacing US-DDGs with US-soymeal, although China’s domestic crushing industry is already overbuilt, so utilizing it even less doesn’t seem to make much sense. Either way, China seems to be slowly learning what the US Government and US Treasury did in the 1980’s: carrying massive grain inventories is expensive. Whether they are slowly moving toward a full-blown market based solution by taking the cheapest product, whether that is soybeans or soymeal, or taking short-term action against MIR-162 isn’t certain, but the price relationships of Meal/DDGs will have big consequences this year.
More corn spreads tied or set fresh contract lows yesterday including the CU/CZ, CZ/CH, CK/CN and CU5/CZ5. Once again, keep an eye on the CZ/CH to move hedges out as it is now paying 70% of full-financial carry with a 2.23% contribution to interest. Weekly ethanol production came in off 5,000bbls/day to 954,000bbls/day, but still well above the needed level to hit USDA demand projections. Stocks took a notable jump of 647,000bbls to 18.587 million barrels, the highest stocks levels since March of 2013. Driving season is over the halfway point, so the big surge in stocks could be more of an issue in coming weeks. Importantly, because of the rampant pace of ethanol production, it looks likely the USDA will raise ethanol demand for corn on the August WASDE.
Bottom Line: Soybeans are off their lows and pushing firmer as we head into export sales this morning which should show big totals for both soybeans and soymeal. These are already baked into the market, but will be supportive nonetheless. The complex really comes down to next week’s rain event and whether totals live up to forecasts. Corn and wheat don’t seem like they’ve seen the bottom yet as the US corn crop still appears to be getting larger, and global wheat supplies are definitely getting larger. Funds don’t have a reason to reverse positions at this point.
Good Luck Today.
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