Wednesday, August 22, 2012

Overnight Highlights from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.087 at 81.994; NYMEX-WTI down $0.22 at $96.64; Brent Crude down $0.65 at $113.99; Heating Oil down $0.0108 at $3.1137; Livestock markets are lightly mixed; Gold up $1.80 at $1641.70; Copper down $0.0140 at $3.4430; The Yen is firmer, but all other major currencies are firmer; Sugar is firmer, but the other softs are weaker; S&P’s are down 3.75 at 1408.75, Dow futures are down 24.00 at 13,174.00 and Treasuries are firmer.  

Equity markets around the globe are softer this morning as trade data from Japan and a plea from Greece for more time encouraged profit taking.  It should be noted, however, that the S&P 500 hit its highest level since May of 2008 yesterday before closing with small losses.  Overnight, Japan reported a July trade deficit of $6.5 billion as Europe’s debt crisis curbed exports.  Exports to China were also down 12%, while those to the EU were down 25%, the biggest decline since October of 2009.  On the bright side, some countries in the EU are seeing borrowing costs fall to multi-year lows.  Portuguese 10-yr debt yields are now at 8.7486%, the lowest since May 19th, 2011.  Irish 10-year yields are at the lowest since Oct of 2010.  Today we will get Existing Home Sales Data.

Rainfall in the last 24 hours was light and confined to TX/AZ/MT and scattered down the East Coast.  The radar is mostly quiet.  The 1-3 day forecasted rainfall map looks good for the central plains with sizable showers set to fall in OK/KS/N-TX with amounts around 0.25-1.25”.  E-NE/SD/E-ND/MN/NW-IA should also see a 0.25-0.50” in the heaviest locales.  Sat-Mon will see the WCB and Southern Plains with more rain chances with some areas receiving as much as 2.0” in the entire 5-day run.  This will be welcome as NOAA maps take on a drier/warmer tone for the 6-10 and 8-14 day outlook.  Temps should be in the upper 80’s and low 90’s.  “Australia’s forecast sees a system to bring 0.20-0.60” to South Australia, Victoria and far southern NSW by the end of this week.  Mainly dry weather will dominate the rest of the Australian growing weather the next 10-days.  The rains will be welcome, but more is needed, and the lack of rains in the west is becoming worrisome.”

Ag markets are under a bit of back and fill this morning, although the weakness pales in comparison to the strength witnessed the past two sessions.  Soybeans put in new contracts highs while December corn posted new high closes.  Wheat markets have made solid advances as well, but remain anywhere from 15-30c away from breaking the downtrend and putting in a higher high.  The main catalyst for the strength this week seems to be the ProFarmer Tour’s disappointing yield results from SD/OH and now IN/NE, on top of the solid export demand witnessed in soybeans on the break.  Possibly adding some pressure this morning is two more states lining up to petition the EPA to waive the ethanol mandate.  NC, AR, GA and NM have now sent petitions.  More on this tonight.

Headlines overnight included the US Army Corp of Engineers issuing a statement saying low water levels that are restricting shipping traffic, forcing harbor closures and barges to run aground will continue into Oct.  I can hear the railroads smiling.  The Pro Farmer tour released SD and OH yields on Monday night with those down 47% and 29% on corn, respectively.  Pod counts were down 17% in OH and 47% on SD.  This compared with the USDA down 16% and 12% in Aug.  Should be noted, the tour went through the absolute worst areas of SD, hit the hardest by the drought.  The entire state of SD will not be down 47%.  From Moscow we learn grain stocks as of Aug 1 totaled 27.692MMT, down 14.8% y/y.  More cuts to Russian corn production were being discussed as well.  A little further west, the German grain harvest may hit 43.8MMT, up 5% y/y according to the German farmers association.  Wheat production is expected down 6%, however, with barley the big gainer.  Argentina corn is said to be around ¥260/MT less than domestic Chinese supply before VAT.

Open interest changes yesterday included corn up 21,270 contracts, wheat up 6,810, soybeans up 12,670, meal up 2,990 and oil up 2,710.  The big jump in open interest suggests the trend following funds are getting back on board, and chatter from the floor suggest it was in fact fund buying, not commercials adding coverage.  This could still lead to panic buying yet.  Chinese markets were firmer again overnight with soybeans up 21c, meal up $9.20, soy oil up 114c, corn down 2.75c and wheat down 2.50c.  Paris Wheat is down 0.47%, Paris Rapeseed down 0.05%, Paris Corn down 0.48% and UK feed wheat is down 0.12% after hitting new contract highs this morning.  Quickly, JP Morgan was in buying calls again yesterday, adding another 20,000 CZ970 calls and 5,000 CH1080 calls.

Call things a bit softer to begin with today, but we get ethanol production at 9:30 which could be supportive, and the increases in volume and open interest on the recent rallies suggest participation is picking up.  Pro Farmer should continue to supply a steady stream of poor looking crop pictures and yield reports with their final estimate coming on Friday.  StatsCan will be out this morning with their updated Canadian estimates.  Increases are seen in Wheat and Canola.

Trade as of 7:05
Corn down 3-5
Soy down 5-10
Wheat down 4-9

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

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