Thursday, July 12, 2012

afternoon grain market comments from Country Hedging's Tregg Cronin 7-12-2012

Below is from Country Hedging's Tregg Cronin

No full write up today, but some comments worth sharing:

First up, both weather services we use were less aggressive with rains in the central belt this weekend.  One is looking for spotty rains across E-IA/IL/WI/MI/N-IN now thought to be less than 0.20”.  The Northern Plains should be quiet the next 5-days.  The other said they reduced their 1-5 day coverage 5% to 40% through Monday.  Then the heat gets turned back on beginning early next week with Chicago forecast to hit 100* on Tuesday.  10-day highs for select cities below:

Sioux Falls: 87, 92, 91, 92, 92, 93, 89, 92, 94, 92
Omaha: 91, 95, 97, 95, 95, 95, 94, 95, 98, 96
Des Moines: 90, 93, 94, 96, 96, 95, 93, 98, 95
Decatur: 92, 90, 89, 93, 93, 93, 93, 92, 96, 95
Marshall, MN: 88, 89, 91, 90, 91, 88, 89, 93, 88
Indianapolis: 91, 85, 86, 90, 91, 91, 90, 89, 91, 94
Madison, WI: 91, 94, 92, 90, 94, 94, 91, 89, 93, 95

Very few overnight lows below 70* it should be pointed out, and even during the chances of rain for the ECB, most fail to move below 90* for a daily high.  Worth pointing out the sharp rebound in Nat Gas prices around midsession when the maps came out.  Hotter next week? 

More and more anecdotal reports from the WCB about how dry things are getting with S-SD talking of chopping silage already before nitrates move into the plant and render it useless.  SW-MN is also hurting bad for a rain, and according to boots on the ground need one in the next 10-days or else….  Scattered headlines had the wheat market moving higher today including the Russian Grain Union stating the entire Russian grain harvest would be below 80MMT.  This likely implies a wheat crop around 46MMT vs. the USDA’s latest guess at 49MMT.  Paris Milling Wheat finished up 3.0% today, and one trader said there was talk of Black Sea export controls, but those seem unlikely at the moment.  Keep in mind, however, it was late July/early August when Russia banned exports in 2010.  We made our blow off top the first week of August, sold off until November before rallying into the 2011 highs near $9.00 basis Chicago Wheat.   There were also rumors running around Indian wasn’t going to allow wheat exports, presumably because of high food inflation.  Lastly, contacts suggested China was sniffing around for cash wheat for feed stock, but basis moves didn’t imply same.

Corn yield ideas continued to move lower today with Rosenthal Collins dropping their estimate to 135bpa while NewEdge cut theirs to 139.9bpa.  As noted in yesterday’s commentary, RJ ‘O Brien’s two analysts are using 140-141, but both said when taking a look at state yield data, it doesn’t take much imagination to move it below 140bpa.  Another interesting tidbit from today’s session was DTN took a look at comparable drought year’s and the differential between planted and harvested acres.  In 1988, 2002 and 2005, harvested acres were typically 10% less than planted vs. the current year’s 9.2%.  If the 10% is used, another 312mbu can be shaved off our production.  For every half a million acres which come out of the harvested column, subtract 73mbu if we take the 146bpa as fact.

As noted in this morning’s comments, China did hold a successful state reserve auction on soybeans overnight where 99% of the 394,000MT offered were purchased at a price between $16.87-17.11/bu.  Their markets were down 41c.  This is the function of the market: go to a price which discourages the buying of US soybeans.  As evidenced by Brazilian basis levels today, up 20c to +200Q, it will be US beans they have to stop buying as South America doesn’t have any.  Speaking of exports, soy complex exports continue to be incredibly strong.  In the last week, exporters sold 12.2mbu, way above the 2.5mbu needed per week.  The USDA will have a difficult time justifying further demand cuts if this keeps up.  Bean Oil and Meal were also very strong, wheat was mediocre and corn was weak.

Traders were making note of RIN prices today, which have rallied to $0.0345/gln from around $0.01/gln at the June lows.  When these start approaching $0.10/gln it will be significant and worth noting as the rationing process of corn rolls on.  Barge freight continues to push higher as low water inhibits grain movement.  CIF corn bids were slightly weaker on the front end, but 1c firmer for new crop.  More chatter about Brazilian maize trading into South Carolina with the first vessel said to be on the move.  Again, more instances of rationing.  The spread between live cattle and feeder cattle continues to blow wider thanks to rallying corn, improving cattle crush calculations.  Still not a business a guy wants to leap in to with both feed, but better than something that isn’t so great.

If you noticed yesterday in the comments, any and all protein premiums have been wiped out of spring wheat.  Right now, wheat is wheat.  ND weather has been a bit cooler/wetter than SD weather, so possible high protein isn’t uniform, and Canadian weather likely less threatening than ND for same reasons.  Scales in the country are around -2/+2c a 1/5.  It would seem the elevators in the northern plains are content to let the farmer store grain when there are no carries on the board, and the farmer wants to utilize his new storage.  With that in mind, expect limited carries and small inversions to persist in Minneapolis wheat as has been the case the last several months.  As the market wants the wheat it’s going to have to bid for it and keep spreads firm, but farmers aren’t being paid to store spring wheat, and that is something they should realize.

Grains are up nicely on the week, and should try to carry gains into the weekend tomorrow.  I don’t know too many who want to be short going into a weekend in which rain chances are iffy at best.  Our markets don’t feel like they’re done going up just yet, but the demand destruction taking place is clear and present.  When it matters, it’s really going to matter.  Keep making sales, especially on wheat as historically these prices are near the upper 10-15% of historic ranges and at harvest no less.  A couple pictures to follow:

North East, IA near Decorah.


Tregg Cronin
Market Analyst
651-355-3723 fax
Country Hedging, Inc.
The Right Decisions for the Right Reasons

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