Wednesday, August 15, 2012

overnight highlights from Country Hedging's Tregg Cronin 8-15-2012

Below are overnight highlights from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.261 at 82.744; NYMEX-WTI down $0.37 at $93.08; Brent Crude down $.25 at $113.78; Heating Oil down $0.0011 at $3.0335; Cattle are firmer and Hogs weaker; Gold down $7.40 at $1592.00; Copper down $0.0125 at $3.3520; All major currencies are firmer this morning; The softs are all firmer except for Coffee, although Sugar is on the lows this morning. S&P’s are down 2.25 at 1399.25, Dow futures are down 20.00 at 13,112.00 and Treasuries are weaker.  

Asian and most European equities were lower overnight, although there is some optimism in London this morning. U.K. jobless claims unexpectedly fell in July as did one measure of unemployment, obviously tied to the pickup in hiring surrounding the Olympic games.  Jobless-benefit claims fell 5,900 to 1.59 million vs. estimates for a gain of 6,000.  The jobless total fell to 8.0% from 8.1% in the second quarter.  However, Britain’s economy shrank 0.7% in the second quarter, so context needs to be included.  The BOE voted unanimously to keep their bond-purchase target unchanged this month.  Economic data in the US today includes the CPI, Empire State Mfg Survey, Industrial Production and the Housing Market Index.  Borrowing costs for the PIIGS are lower this morning.

Rainfall in the last 24 hours was confined to N-TX where areas around Ft. Worth and Dallas picked up 0.50-1.00” while portions of OH/KY/WV/PA received scattered amounts.  NE/S-SD also saw some light totals.  There are some scattered systems on the radar this morning including a heavy a storm in N-TX as well as rain moving across MT/ND.  The next 1-2 days will see rains impact most of MN and a portion of IA with chances around 0.20-0.60”.  IL/IN/MI also have good chances of picking up 0.50-1.00”.  Following the next two days’ worth of rain, the Midwest should be mostly quiet.  Tue-Sun will see heavy rains across almost all of TX, however, with localized amounts as high as 3.50”.  The extended maps from NOAA look cool and dry through the end of August, while private maps are trying to remain more generous with rains across the Northern Plains in the 6-10 and southern plains in the 11-15.  Australia will see around 0.20-0.60” for South Australia and NSW by the end of the week, but coverage will be limited.

In a repeat of yesterday, Ag markets are riding a bounce from the overnight session as US traders fill offices.  What will be interesting is whether we can hold gains through the session today, or see them erode and lead to sharp losses like those of Monday and Tuesday.  Forgive me for sounding like a broken record, but our markets are having a difficult time gaining traction as the market shifts from one completely focused on supply to one more concerned with demand.  Now that the weather has shifted to a more favorable pattern, supplies have likely finished getting smaller, even if we aren’t sure how small they actually got in the first place.  One thing is for certain, however, and that is the tone of the farmer has turned much more optimistic with some thinking they can still pull this off.

Headlines from last night included the China National Grain and Oilseed Information Center forecasting corn production at a record 197MMT, up 2.2% y/y.  Several articles did note the crop could get smaller, however, due to a severe infestation of army worms.    They maintained their wheat forecast at 118MMT, even though most privates are well below that level.  Also from China, pork imports from the US are expected to rise 29% this year following a 30% increase in LH-2011 according to the Beijing Orient Agribusiness Consultant Ltd.  Imports from the US will account for 2% of China’s annual pork consumption this year.  Total imports could reach 620,000MT according to BOABC.  Following that story was another which said the China Yurun Food Group Ltd, the country’s second largest meat supplier, reported a 93% decline in FH-2012 profits as hog prices plunged.  The combination of a slowdown in economic growth as well as the increase in production costs are being blamed.

Open interest changes in yesterday’s session included a drop of 4,400 wheat, corn down 7,720, soybeans down 2,750, meal up 960 and soy oil down 3,270.  Some decent liquidation yesterday as markets reversed course.  Chinese markets were up last night with beans 22.75c higher, meal up $8.30, soy oil up 1c, corn up 3.25c and wheat up 11.50c.  Paris Milling wheat is up 0.69%, Rapeseed up 0.05%, UK feed wheat unchanged, Paris corn up 0.50% and Canola up 0.55%.  RJO’s domestic margin recap showed value added margins improving on ethanol, poultry, hogs and cattle.  Should be noted, however, that poultry and hog crush margins are near multi-year lows while cattle is above the 5-year average.  In talking with one of our exporters yesterday, it sounds like the bean business to China last week will end up totaling around 1.4MMT vs. the 500-600,000MT which was reported in the daily reporting system.  Look for sales tomorrow to be big.  Also, there is a vessel in C-Brazil waiting to load grain which is set to discharge in Wilmington, NC on 8/24.

Call things better today as it looks like we might actually hold together for a change.  Wheat has had its biggest three day losing streak in over a year and can afford to bounce just a bit.  Soybeans have shown no signs of demand rationing whatsoever with improved crush, strong export sales and firm basis levels both on exports and domestically.  Look for beans to regain some of its losses the balance of the week.  Weekly ethanol production will be released at 7:30 and should show another uptick.

Trade as of 7:05
Corn up 3-4
Beans up 7-14
Wheat up 5-7

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

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