Monday, July 30, 2012

Overnight Highlight's from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.110 at 82.819; NYMEX-WTI down $0.11 at $90.02; Brent Crude down $0.45 at $106.02; Heating Oil down $0.0098 at $2.8797; Gold up $0.80 at $1620.00; Copper down $0.0025 at $3.4235; The Yen, Loonie and Aussie are firmer while the other major currencies are weaker; Cotton is weaker while the rest of the softs are better; S&P’s are down 4.00 at 1378.50, Dow futures are down 23.00 at 13,009.00 and Treasuries are a bit firmer.

While not as impressively so as last week, financial markets are better for the most part this morning with borrowing costs in Europe steady to slightly easier, equities on a firm note and overall optimism heading into this week’s European Central Bank meeting as well as the Federal Reserve’s FOMC meeting.  Investors are under the general impression the ECB will take action of some sort while the FOMC could opt to continue monitoring conditions.  Euro-area economic confidence dropped to 87.9 in July from 89.9 in June, the lowest since September of 2009 and below estimates.  The US economic calendar is light today with just the Dallas Fed Manufacturing Survey out mid-morning.

Rains in the last 24 hours fell mainly in NE and along the MS-River.  Totals in S-NE were as high as an inch in some places although coverage on the state was about 50% with most areas seeing lighter totals.  MN/IA/MO/IL saw scattered precip between 0.10-0.40”.  Additional rain is moving across NE and into IA/MO this morning.  NOAA forecast maps keep the majority of the Midwest dry this week with the best precip in the SE-US.  By Thursday, rains are seen falling in E-SD/W-MN/NW-IA with the heaviest totals in SD and around 1-2.00” for the weekend.  Temps warm back into the mid/upper 90’s this week for the majority of the central corn belt.  Omaha will be 97-101* this through Friday.  Extended maps are showing chances of rain in the central/east corn belt during both the 6-10/11-15, but this was on the wetter GFS maps which have been overly optimistic the last 30-45 days.  The euro model sees rain in IN/OH/KY/TN while the WCB would be dry.  NOAA sees hot and dry during the 6-14 day.

Generally disappointing rains over the weekend in IA got the markets up and running overnight with soybeans leading the surge higher with gaps posted on daily charts.  The weather forecasts for IA/NE are not conducive to setting and filling soybean pods with little to no rain the next 10-days during crucial development stages.  Last week, the markets were under the idea with some rain, we could stabilize this crop around 38-39bpa.  With current forecasts, it will be tough to keep the national average from heading towards 35-37.  December corn also posted new contract highs at $8.17 ¼, busting through what was stiff resistance.  This really is all about weather and determining how small our supply actually is.  Once that is accomplished, we can focus on the demand we are rationing.

Beijing announced it will auction 400,000MT of soybeans from state reserves on Thursday.  Wires said state soybeans are around 10% cheaper than imported beans.  The government has sold 1.1MMT of state reserves soybeans since April, and have around 10MMT of reserves left according to CNGOIC.  This is the function of this market: get China to dip into reserves.  India’s monsoon rainfall was 21% below the long-term average as of Sunday.  Russian milling wheat was up 0.3-0.6% last week while feed wheat was up 1.3%.  Crop conditions on this afternoon’s USDA report are likely to show another 1-3% drop on corn while beans could possibly stabilize.  One of Australia’s largest grain handlers is forecasting Western Australian production down 40% at 9-11MMT vs. 15MMT LY.

Open interest changes had corn down 7,800 contracts, beans down 15,590 and meal down 3,050 on Friday.  Wheat was up 1,010 and soy oil was up 3,500.  Chinese markets rallied sharply overnight with soybeans up 61.75c, meal up $19.70, oil up 122c, corn up 7.50c and wheat up 8.50c.  Paris Milling Wheat is up 2.72%, Rapeseed up 1.85%, Paris corn up 2.34% and UK Feed Wheat is up 3.09%.  Basis going home on Friday was generally under pressure, especially spring wheat which is going to have values rivaling winter wheat if it’s not already there.  The better than expected yield and quality is putting the buyer in the driver seat.  Don’t expect a firm basis tone in the wheat market until export demand picks up or Canada finishes their harvest in Sept/Oct.

Call things better today as crops are still getting smaller, financial markets have an optimistic tone and demand hasn’t slowed enough on anything to warrant a top.  Output prices are climbing just as fast or faster than input prices for end users of corn and meal, making this rationing job one of historic proportions.  Scale up put protection or sales in areas where production is better known should be on the decision block.

Trade as of 7:15
Corn up 19-22
Soy up 29-38
Wheat up 14-18

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

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