Monday, November 19, 2012

Afternoon recap from Country Hedging's Tregg Cronin 11-19-12

Outside Markets as of 1:00 CDT: Dollar Index down 0.294 at 80.872; NYMEX-WTI up $2.77 at $89.68; Brent Crude up $3.14 at $112.07; Heating Oil up $0.0974 at $3.0841; Livestock prices are firmer; Gold up $19.70 at $1734.00; Currencies firmer.

Very supportive outside markets today on optimism towards the fiscal cliff after comments Friday made it sound like the talks were “constructive.”  Highly doubt we’ve seen the last of the volatility tied to this issue.  On top of the comments from DC, the ongoing tension in Israel/Gaza has also put a bid under energy markets.  Commitments of Traders data showed funds holding the smallest net long in crude oil since September of 2010, leaving plenty of room for additional buying should it be deemed necessary.  Economic data in the US today included existing home sales which were reported at 4.79 million units, above the 4.70 million estimate.  This was a 2.1% increase from September, higher than the unchanged estimate.  Year-over-year sales were up 10.9%.

A very nice bounce in corn today which picked up around 10:00 CDT.  Trade managed to push through the $7.32 resistance level with relative ease, a positive technical signal and likely adding some additional buying.  It is also putting more distance between spot and the $7.00 level which currently contains the most amount of open interest for the expiring December options.  Option expiration is 12:00 CDT Friday.  At last glance, there were 41,763 total open options including 27,966 puts.  There are also 36,687 options open at the $7.50 strike, making it a potential candidate as well.  Supportive overnight was word Asian buyers are turning increasingly more to the US for corn import needs due in large part to still hefty lineups in Brazil.  While down from the 2.3MMT at the beginning of the month, the shipping lineup this morning was pegged at 1.366MMT, or 24 Panamax vessels.  The slow progress is no solace to Pacific Rim buyers waiting for replacement.  Somewhat encouragingly, there is only one vessel left in the lineup declared for the USA.  Doesn’t mean more can’t be declared later, but fewer than has been the case.  Movement was very slow to begin the holiday shortened week.  CIF values were seen down 1c on the bid side for Nov at +89/95Z while Dec was up 2c to +82/86Z.  Hedging was heavier today than last week, but by no means “heavy.”  Spreads held relatively well, up 0.25c on the day to -3.50c.  Would think it would show more strength were it not for worries about a river closure sometime mid-Dec.  No real change to that over the weekend, with draft restrictions looking likely around Dec 15.  The PNW situation has taken on new life with a potential strike at the Port of Portland on Nov 25 if an agreement isn’t reached.  Some of the elevators might not be affected, but not a great situation when the two major ports are hampered.  Export inspections were 14.4mbu, above last week’s 9.5mbu but below the 23.6mbu needed weekly to hit the USDA’s export forecast.  More expectation for a pickup in exports than what’s actually happening. 

Wheat markets managed a positive close, although it was definitely the laggard of the major Ag markets.  Some wind seemed to be taken out of the sail when Egypt didn’t show up to tender over the weekend, and offers on the Iraq tender were reported, showing US as $40-50/MT out of the money.  C&F offers included Romania at $394/MT (50TMT), then Russian at $399/MT (50TMT).  These were followed by 400TMT out of Australia at $401-407.65/MT, 300TMT from Canada at $404.95-425/MT, some Bulgarian at $402/MT and Hungarian at $406/MT.  US-HRW was offered at a staggering $444.04-454/MT.  This seemed to shock some traders as it means US hard wheat is by far the most expensive in the world, and there is still a fair amount of wheat for sale out of origins thought to have dwindling supplies.  In addition to this story, there were also wire accounts of Indian wheat trading into Eastern Africa as milling wheat, not feed wheat like many had been penciling it.  When one considers the Indian supplies (which weren’t available in 2007/08), and the fact the Black Sea is still shipping wheat, it becomes clear the situation isn’t as dire as even 2010/11, and the window for ratcheting up exports to hit the USDA’s target of 1,100mbu is slowly closing.  Bloomberg reported grain exports for November will probably be a record 3.2MMT for this month.  There has been 1.8MMT so far this month with 900TMT wheat and 800TMT corn.  Lastly, only around 2% of the UK’s wheat has been rated as “high-quality bread milling” as opposed to 40% in 2011.  Could mean quality imports later in the year.  Other notes included Western Australia’s harvest pegged at around 35%.  This is another item which could have been applying pressure to our markets in addition to the funds dumping.  The commercial shorts have increased from 234,794 contracts to 245,010 the last several weeks which could include some Australian farmer selling.  These prices look a lot more attractive to the world farmer than they do the US farmer, and as we’ve seen with Canadian farmers, they will sell.  Wheat/Corn spreads corrected further today with the KWZ/CZ tumbling all the way to +138.25c, the lowest level since October 12th.  WZ/CZ closed at +103.00c, the lowest since mid-September.  These should continue to contract as we aren’t competitive on feed, and if our export prices remain as high as they are, we need feed demand to help out the lack of export demand, otherwise our balance sheet will get more comfortable.  Spreads were unchanged to better on the day, but the last trade on the MWZ/MWH put it at -11.00c.  Inter-markets were quiet.

Soybeans firmer all night as prices held some very important retracement levels, which also coincided with the old highs from September 2011 and April 2012.  Former resistance, once broken, becomes new support.  Combine that with enough people yelling “oversold” and we can bounce.  In addition, export inspections confirmed another huge week of shipments at the expense of grains.  We also saw the USDA announce another 20,000MT of soybean oil sold to unknown destinations for 12/13.  This follows two sales last week, giving us around 90,000MT of soybean oil sold in the last 7-days.  This has been a big reason behind the oilshare correction we’ve seen as of late.  Soy oil was up 1.79% today while meal was unchanged.  Soybean basis was unchanged on the river today at +99F.  PNW bids could be called +120F, unchanged.  Most eyes are waiting to see what happens next weekend with the PNW longshoreman strike.  South Korea is also sniffing around for some soymeal.  With the huge soymeal export sales and recent purchases of soybean oil, one has to wonder if imports are buying the products because that is cheaper than buying the beans and crushing them themselves.    Soybeans feel as though they should move back inside a 1400-1500 range.

Crop Conditions out tonight showed a huge drop in PNW conditions, presumably due to the excessive rains the past several weeks.  Note map below.  The central belt seemed like it stabilized, although CO also saw a very big drop of 12pts.  Safe to say this is the worst established wheat crop on record.

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

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