Outside Markets as of 6:05am: Dollar Index up 0.1270 at 81.4550; Euro down 0.00320 at 1.33890; S&P’s are down 3.50 at 1928.50; Dow futures are down 20.00 at 16,466.00; 10-yr futures are down 0.01%; The Nikkei closed down 1.00% at 15,320.31; The DAX is up 0.51% at 9,201.28; The IBEX-35 is down 0.21% at 10,473.70; Gold is up $2.90 at $1291.80; Copper is down $0.60 at $323.80; Crude Oil is up $0.26 at $98.55; Heating Oil is up $0.0004 at $2.8716; Paris Milling Wheat is down €0.25 at €173.00/MT.
Mixed to weaker equity markets this morning as investors are still trying to determine what last week’s losses on US bourses mean, and economic data this week hasn’t been rosy either. The HSBC index of Chinese service businesses activity fell to 50.0 in July from 53.1 the month pervious, the lowest rate since November 2005. The Euro-area Purchasing Managers Index rose to 54.2 from 52.8 in June, but below the 54.4 published on July 24th. Analysts said the data points to euro-zone GDP growing at a quarterly rate of just 0.4%. European Central Bank officials are expected to leave the benchmark rate at a record low of 0.15% when meeting in Frankfurt this week.
Scattered storms across the central and western corn belt this morning with the main precip event expected to begin later today in earnest. Precip will fall across a large swath of SD later today and into tonight leaving a general 0.50-1.00” across much of the state before moving into IA where totals are expected to be heavier. Rainfall continues expanding into IA/MO/IL the next 3-days with totals over the period jumping as high as 3.5” in NW-IA. All told, heavy rainfall is expected the next week over dry portions of the WCB. These rains will be crucial to achieving record soybean yields nationally. NOAA extended maps keep temps normal/below, while precip stays normal/above east of the MS-River, but below normal west of the MO-River. Hurry up and wait on the rain totals.
Weaker Ag markets this morning in what looks like a “Turnaround Tuesday,” as near-term forecasts look like they are going to verify with rainfall for the driest portions of the WCB and Northern Plains. Yesterday’s rally, especially in the soybean complex, felt like traders wanted to see rain in the gauge before signing off on a record national yield. Today, it feels like the forecasts are too near-at-hand to ignore, and if the rainfall comes through, record national yields could be realized. That said, the pain-train that has been the corn and wheat markets the last few weeks seems as though it is at least slowing down if not bottoming out altogether as wheat harvest pushes closer to completion, and the market becomes more comfortable that the balance sheet is already using a 170bpa+ national yield. More and more analysts continue to suggest a 170bpa national corn yield, and USDA demand assumptions, are consistent with $3.60-3.70 December corn. There is no denying a large US corn crop, but whether the eventual yield is 165 or 170 or 175 might not matter as much as how this crop is handled along with still large old crop inventories on farm and at the commercial elevator.
Crop conditions out last evening were about as expected with the corn crop down 2% to 73%, but still the best conditions in 10-years. The crop is 90% silked vs. 88% average, and completed pollination in one of the most ideal weather scenarios most can remember. 36% of the crop is doughing nationally vs. 29% average which will help squelch late-crop fears. National soybean conditions were unchanged at 71% vs. expectations for a small decline. Conditions remain the third best since 1986 with 85% of the crop blooming and 57% of the crop setting pods vs. 48% average. HRS conditions were unchanged at 70% vs. 68% last year, while winter wheat harvest progress was pegged at 90% complete vs. 85% average.
While a day late today given my absence from the market, still some interesting data points in Friday’s COT report worth sharing. First off, funds are finally starting to flex their might with a short position in corn, with the latest tally showing them short -20,554 contracts, the largest short since February 18th. Bullish sentiment by funds on corn is now at 48.33%. Nothing overt from the commercial trenches, so it looks like trend-following funds are keeping a level head about pursuing lower corn prices. Soybeans finally saw a reversal in recent trends with funds paring back their net short for the first time in 5-weeks, taking their net short position to -53,266 contracts, up 12,816 from the week before. Commercials remain net long the market, but selling was witnessed by the Gross Commercial Long after several weeks of buying. This could have coincided with the big string of export sales which might slowly be coming to a close after world importers took a big lick of soybeans. Funds need a reason to cover their existing short position to make another leg higher in soybeans, and if the rains verify, hard to see what that might be.
Nothing outrageous in wheat other than funds now have a net short position in Chicago wheat of -88,129 contracts, the largest since February 4th. End users of wheat have also been buying quite consistently as of late, signs of a possible low in the short-term. Lastly on commodities, the aggregate large spec position across corn, soybeans, wheat, KC wheat, soyoil, lean hogs, live cattle, feeder cattle, cotton, sugar, coffee and cocoa is down to 57,958 contracts net long, the smallest net long across these markets since January 28th, 2014. Funds don’t spend a great deal of time with this aggregate position below 50% on the bullish sentiment reading, and right now it’s sitting at 51.2%. Always have to stay on top of their position.
More and more chatter about the composition of feed wheat in the European harvest this year, and how it will affect global trade flows. The increased export interest in US wheat is probably directly related to said event. Concerns now become how to treat Paris Milling Wheat is the crop in the field, and eventually in commercial warehouses, isn’t milling wheat? Currently, the spread between Paris Milling Wheat and UK London feed wheat is trading at $25.99/MT, right near the highest levels of the last year. After a spike low last week in the UK fed wheat/Paris Corn spread, that relationship is trading at -$8.61/MT this morning. Worth noting in regards to Paris Wheat, price showed a major spike low Friday to print fresh contract lows before recovering with a key reversal. It did so with the second highest volume since March 3rd. Possible lows in?
Minneapolis spot floor premiums remain stubbornly high with 15.0% a bit softer yesterday by 30-35c, but still quoted +380/400U. 14.0% were quoted at +160/220U, making the spread between the two classes 44c per 1/5th. KC proteins were a bit softer yesterday, down 5c for all grades, and putting 12.0% at +125/135U. As expected, KW/MW is beginning to follow its seasonal pattern of KW gaining on MW into HRS harvest. With crop prospects looking solid, KW/MW probably heads back toward -40.0c basis the U and Z contracts.
Bottom Line: Lower markets today as we await the rainfall event in the WCB. This moisture could literally make or break the prospect of a record national soybean yield, so it’s importance can’t be highlighted enough. Otherwise, we are in ramp-up mode to the August WASDE which is expected to show a national corn yield of 170bpa+. There isn’t really much one can use to argue against such a yield, at least not at this point. Grains feel like the downside momentum has waned, but it’s all contingent on how big these crops actually get.
Good Luck Today.
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