Outside Markets as of 5:35am: Dollar Index up 0.0820 at 80.4340; Euro is down 0.00120 at 1.36220; S&P’s are up 4.50 at 1913.75; Dow futures are up 36.00 at 16,690.00; 10-yr futures are up 0.12%; The Nikkei closed up 0.24% at 14,670.95; the DAX is up 0.09% at 9,950.11; The IBEX-35 is up 0.26% at 10,742.00; The Russian MICEX is up 0.52% at 1,424.65; Gold is down $0.60 at $1265.10; Copper is up $0.85 at $318.60; Crude Oil is up $0.21 at $104.32; Heating Oil is up $0.0056 at $2.9450; Paris Milling Wheat is down €1.25 at €191.75.
Quietly mixed equities overnight as the S&P 500 hit fresh record highs again yesterday. What’s interesting, or troubling depending on your position, is the S&P 500 is the only major index out of the four (Dow, S&P, Russell, NASDAQ) which is hitting fresh highs. Several trade publications have pointed out volume on the rally has been especially light, raising red flags about its sustainability. On last Friday’s fresh record high, only 23 stocks of the 500 in the S&P closed at new highs, just 4.6% of the total membership. 30-yr mortgage rates fell to a fresh 7-month low last week of 4.14%, which was down 44bp from the 3-yr high hit back in August of 2013 at 4.58%. The current mortgage rate is 74bp above the 3.40% seen a year ago.
Popcorn showers scattered around the Midwest this morning, but no organized activity to speak of. The first post-Memorial Day weekend models certainly provided some color yesterday afternoon, bringing in a sizable moisture event for the WCB and Northern Plains later this week. Moisture will finish up in the east by tomorrow, and then systems will move into ND Thursday with both Dakotas seeing moisture Friday into Saturday. The weekend will bring more precip with much of SD seeing 0.50-3.50” for the 3-day period ended Monday. The same event moves into MN/IA/WI Tuesday into Wednesday. The total forecasted precip for the 7-day stretch is in the map below. If this verifies, there should be a fair amount of acreage which gets enrolled in the PP program. 6-10 and 8-14 day maps keep the ideal weather in place with above normal temps and precip through June 10th.
Ugly session yesterday followed by more of the same in grains overnight while the soy complex is clawing back just less than half of yesterday’s losses. Themes remain the same, regardless of how repetitive they seem to be getting: ideal growing conditions for planted crops, lack of competitiveness on the world wheat export market, tight old crop soybean balance sheet and planting progress which has caught back up to averages after a sluggish start. While planting progress looks close to average, I think this could be a bit misleading considering the date, forecast and remaining acreage in ND/N-MN. As of last night, 88% of the nation’s corn crop had been planted, spot on the 88% 5-yr average. But in ND, only 67% of the crop has been planted, leaving 973,000 acres unplanted as of Monday. In MN, there are 1.634 million, in WI 1.353 million, MI 1.245 million and OH 1.147 million unplanted corn acres. In total, these five states have 6.35 million unplanted corn acres with PP dates to be hit by all five this week. Farmers can choose to keep planting, but lose 1% of their maximum coverage rate each day past the PP date. Weather where the crop is planted is ideal, and shouldn’t be marginalized, but the June acreage report is shaping up to have a few surprises.
Soybean planting progress came in above expectations at 59% planted vs the 5-yr average of 56%. Notable laggards are the same 5-states as in corn, although still lots of time for soybeans to be planted, and obviously some of the aforementioned corn acres could, and will, get switched to soybeans if seed is readily available. On spring wheat planting, decent progress was made last week with 74% of the crop planted vs the 5-yr average of 82%. 40% of ND remains unplanted, while 33% of MN is unplanted. North Dakota accounts for roughly 46% of the total US spring wheat production, so these 2.3 million acres are incredibly important. The forecast below looks as though planting could get shut off into June. Winter wheat conditions stabilized last week, moving up 1pt to 30% G/E vs 31% last year. HRW and SWW conditions remain well below averages while SRW conditions remain favorable.
The other notable feature yesterday was the strength in corn basis and spreads as the board continued to sink. Farmer selling has shut off with fieldwork taking precedence or current prices just not encouraging much selling. This should limit significant downside from current levels given end user profitability, but there is still a very large amount of corn on-farm the farmer has to move this summer. When and how this corn moves will prove very interesting for our cash markets and spreads. CIF corn bids for afloats are worth +70N against no offer, FH-June +64N. Call these up 3-5c w/w. Iowa corn processor basis was also firmer by 2-5c yesterday from week ago levels. PNW rail corn is holding +100N, while HETX shuttles are bid around +78/80N. The CN/CU and CN/CZ are weaker overnight, but firmed to 6-session highs yesterday. As a general rule of thumb, when cash basis and spreads are firming in unison, it’s always a good idea to stress test outright short futures deployment.
Speaking of end user profitability, US Composite Broiler prices moved to new all-time record highs again last week of $1.2062, up from $1.167 the week prior. As discussed last week, this is due in part to poultry’s competitiveness with beef and pork as an alternative protein source, but also due to the big demand by almost all fast food restaurants now offering breakfast, raising the demand for egg whites and yolks. Ethanol and hog crush remains strong, although cattle crush is slipping to some of the lowest levels on record as feeder cattle prices remain too high relative to fats. Cash crush margins for soybean processors in C-IL remain north of $0.90/bu, suggesting little rationing taking place in that sector. Certainly feels like we’re headed for a mid-summer moment of panic in the soybean market based on the pace we’re crushing and exporting. Time, and spreads, will tell.
It was reported several places last night the Bureau of Meteorology said the odds of an El Nino weather event later this year held at 60% this month, raising the odds of a drier than average growing season in Australia’s wheat belt. Results are mixed on its effects during the US growing season, but generally a drier than average Australia and SE-Asia result from this phenomenon.
Worth noting the difference in fund positions going into the growing season this year vs last year. Last year, funds were short -5,000 contracts of corn, long 60,000 soybeans and short -67,000 Chicago wheat for a net position of -12,000. This year, funds are long 145,000 contracts of corn, 75,000 contracts of soybean and short -13,000 Chicago wheat for a net position of +207,000. This 200,000 contract swing is important considering the growing weather to date, the better planting progress to date and the poorer technical picture as we roll the calendar over to June. Funds need a reason to stay in their current positions. Whether acres in the northern states is enough remains to be seen.
Ethanol production will be delayed until tomorrow at 10:00am due to the Memorial Day holiday.
Bottom Line: Mixed start, but two-sided trade in all of the major Ag’s wouldn’t be too big of a surprise given the beating witnessed recently. Corn basis and spreads are firming with outstanding end user profitability on top of a US farmer uninterested in current prices. The farmer can’t hold out forever, but in the short-term, basis and spreads should provide some board support. Soybeans can’t break too much given the pace we’re using soybeans at and the relative eternity until the end of the marketing year. The HRW crop is done getting smaller, and the board will have hard time rallying on a 750mbu HRW crop if the US is the only wheat problem in the world.
Good Luck Today.
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