Tuesday, July 24, 2012

Overnight Highlight's from Country Hedging's Tregg Cronin 7-24-12

Outside Markets: Dollar Index up 0.072 at 83.778; NYMEX-WTI down $0.17 at $87.99; Brent Crude down $0.31 at $102.94; Heating Oil down $0.0114 at $2.8075; Livestock markets are mostly firmer; Gold down $3.10 at $1574.00; Copper is down $0.0200 at $3.3610; The Yen and Aussie are firmer while all other major currencies are weaker; Cocoa and Cotton are firmer, while all other major currencies are firmer; S&P’s are up 3.00 at 1340.75, Dow futures are down 15.00 at 12,630.00 and Treasuries are lightly mixed.

Equity futures are mostly steady, although most everything was lower in the overnight until German Chancellor Merkel came out in opposition to Moody’s knocking Germany’s credit rating outlook to negative from stable.  She reiterated Germany will remain in stable financial condition through sound fiscal policies, and markets seemed to like it.  It didn’t push any confidence towards Spain, however, with their 10-year Treasury yields rising towards 7.53% and their Credit Default Swaps up to 640bp.  Balancing the gloom from Spain was China’s manufacturing sector clawing back towards growth in July.  The HSBC PMI for July rose to 49.5 from 48.2 in June.  This would seem to suggest the monetary easing done the last several weeks is having an effect.

More rains fell overnight in the upper Midwest, dropping in MT/ND/SD/MN with nice rainfall occurring in the Twin Cities this morning.  A path from Alexandria, MN to Rochester has already received upwards of 1” with no signs of the system quitting anytime soon.  The 5-day forecasted precip map shows the current system to continue across the Great Lakes Region and drop down into the ECB with IN/OH/WI/MI receiving 1.00-2.50”.  IA/MO/NE/KS should be quiet aside from the occasional pop up shower.  Temps in the corn belt yesterday were hot with 90’s in the north of I-80 and 100’s elsewhere.  The weekend should once again be dry, with chances of rain in IA/IL by the first part of the week, although coverage amounts differ.  Temps will cool into the mid to upper 80’s for most areas next week with some low 90’s possible in the West.  The 11-15 map is showing a general drink for the corn belt, but not much confidence at this point.  NOAA’s maps were notably hotter and drier than the privates we subscribe to.  Australia is dormant.

Additional selling pressure showed up at the overnight open last evening, and has carried through this morning led by the soy complex.  Soybeans once again found themselves down as much as $0.57 after dropping near limit the prior session.  The maps turning a bit more favorable definitely has some thinking this soybean crop is still salvageable, although one must certainly acknowledge the run we were on and how badly we needed a correction.  Private scouts continue to cut yields, and most are giving almost no yield chance to double crop acres.  If, and it’s a big if, the rains fall as scheduled, it would seem we can stabilize this crop, but few think we can push yields back above 40bpa which is where they need to be to stifle this rally.  Dec corn saw only moderate losses overnight.

The crop conditions declines yesterday were supportive for corn, although it seemed as though the drop on soybeans wasn’t enough to please the trade.  In overnight headlines, The Ag Minister of Kazakhstan cut their export forecast to 10MMT, down from 12.1MMT last year.  They were likely to harvest 12.8MMT, not the 14MMT previously forecast.  It would seem FSU crops are not done declining.  The government also scrapped transportation subsidies due to rising commodity prices.  Russia has exported 902,000MT of grain in the first 18 days of the marketing year consisting mainly of wheat.  More chatter overnight about the Pacific moving into El Nino and this affecting Aussie and Indian crops.  FWIW, El Nino is typically associated with above average South American crops.

Open interest changes yesterday included an increase of 8,860 corn, 4,140 wheat, and 1,540 soy oil.  Beans were down 6,110 and meal was down 4,200.  Chinese markets dropped sharply overnight with soybeans down 70.25c, meal down $18.20, oil down 186c, corn down 6.75c and wheat up 1.25c.  Paris wheat is down 23c, Rapeseed is down 28c and UK feed wheat is down 20c.  Overnight headlines said the US won’t be the only one with a below trend corn crop as yields in the EU are forecast to be down 12% from last year to 6.73MT/ha.  This would be the lowest yield since 2007.  France and Germany, the wheat exporters of the EU, are in better shape and have been raising crop estimates, however.  Doane Advisory Service kicked off their annual crop tour yesterday and said yields in IL were 27% smaller than a year ago and 21% below the final USDA forecast in the three crop districts they looked at.  Yields ranged from 70-202 within a 30 mile stretch.  Soybean yields were forecast down 16% from last year and 27% from the USDA’s guess in Jan.  

Call things weaker today as we continue to consolidate the rally from the last couple weeks and as rains fall across the upper-corn belt.  The market believes the soybean crop is still salvageable, and as long as that is the case, we can take premium off.  We’ve been goaded into believing wet maps before and it has proved to be for naught.    Bottom line is soybeans have an incredibly tight balance sheet with trend line yields and those look less likely today.  Make good sales along the way, but the final note hasn’t been sung yet.

Trade as of 7:10
Corn down 8-13
Soy down 29-34
Wheat down 9-18

The Spring Wheat Tour begins today so expect yields from ND throughout the session with the tour wrapping up on Thursday.

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

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