Tuesday, January 22, 2013

Afternoon Recap 1-22-2013 from CHS Hedging's Tregg Cronin





Financials

Outside Markets as of 1:15: Dollar Index down 0.166 at 79.867; NYMEX-WTI up $0.54 at $96.10; Brent Crude up $0.61 at $112.34; Heating Oil up $0.0230 at $3.0746; Livestock prices are all firmer today; The softs are getting crushed today with coffee down 4.59%, cocoa down 2.71% and Sugar off 1.09%; Cotton is up 1.65%; Gold up $6.60 at $1693.60; Copper up $0.0260 at $3.7050; S&P’s up 5.50 at 1484.50, Dow futures are up 59.00 at 13,635.00 and Treasuries are firmer.

Despite the fact the main economic data point today of existing home sales missed rather badly, equities seemed to shrug it off with most analysts on CNBC claiming new record highs will be seen in the S&P 500 and DJIA this year.  Existing home sales were 4.94 million units, below the consensus guess of 5.1 million.  Partially to blame, however, is the supply of homes which is at 4.4 months vs. 4.8 months in November and 6.4 months in December 2011.  The Richmond Fed Manufacturing Index also missed big coming in at -12 vs. the consensus of +5.  The January manufacturing reports from one end of the country to the other were decidedly poor.  Crude oil is trading at the highest level since September 19th with speculators jumping on the long side big in recent weeks.

Corn

Firm trade out of the gate last night, but turning more two-sided during the day session.  A higher close was performed thanks in large part to rallying soybeans as there weren’t any bullish developments since Friday.  US corn is still being undersold by South America, and with last week’s ethanol production report dropping to the lowest on record going back to June 2010, we’re really counting on feed demand propping up this market.  Farmer engagement was lightened up, and probably doesn’t uptick until we close in on $7.40-7.50 which pays $7.25-7.75 cash from one end of the belt to the other.  Trouble is, basis isn’t as firm as it was 2-weeks ago, and spreads have been under pressure.  We might be counting on paper demand to push us up to and above $7.50 if that’s where we’re going.

Breaking headlines were somewhat sparse.  Safras released their latest Brazilian corn production estimate, pegging the crop at 70.7MMT, down from 72.7MMT last season and vs. the USDA at 71.0MMT.  No one has had much to complain about in Brazilian growing regions.  Brazil’s vessel lineup to load corn remains large at 2.811MMT, down slightly from a week ago at 2.994MMT.  This should ease in the next 30-45 days as soybean harvest ramps up and they fight for elevations.  Nothing overly remarkable in the Commitments of Traders data as funds bought around 12,000 contracts to push their net long to 62,372 contracts.  End users sold around the same amount.  This was the first week of net buying by the funds since December 4th.  A push towards $8.00 is going to take the large spec trader to get off the sideline and add to his position significantly.  Lots of farmers waiting for a “6” to be put on December ’13 corn.  Would be a good place to start hedging inputs if a producer is sitting at 0% sold for new crop.  Export inspections were 11.0mbu, above last week’s 9.6mbu but well below the 20.7mbu needed weekly to hit the USDA’s export forecast.

CIF Corn markets weakened up during the session today with spot bids falling 4c to +52H for Jan and down 2c to +56H for Feb.  Nearby Illinois River basis is 4.1c below delivery equivalence while Feb is at DVE and March is above by 5.4c.  Weakness in the CH/CK could continue into the index fund roll  the first five business days of February before firming.  Continue to look for -3.00c to bullspread if basis is going to remain under pressure.  Not much change to rail basis this morning with Group-3 rail at +14/17H, and PNW shuttles worth something around +110/112H bid.  Ethanol seems to be holding its own with plants in the WCB somewhere around -5H to option the H.  The CN/CZ was up 1.75c to +132.75c late after hitting +134.25c earlier.  Remains just below the January 16th high.

Wheat

Firmer overnight with corn and soybeans, but weakening steadily into the day session open and accelerating losses mid-morning.  Most analysts were looking around for a reason behind the selloff, but one look at the weekend tender business should have illustrated it just fine.  There was a lot of wheat business conducted over the weekend, and the US participated in almost none of it.  Bulls seem impatient the market doesn’t want to trade the dryness to date in the southern plains and a dry forecast.  We will in due time, but not until we break dormancy.  Until then, the lackluster export business is weighing.  Export inspections of 21.9mbu were much better than last week’s 10.7mbu, but still short of the 24.7mbu needed, and we’ve only got 19 weeks left in the marketing year to ship 488mbu.

The bullish input of Russia removing their import duty on wheat of 5% seems less likely today than last week.  Russian officials said they aren’t ready to support such a policy, even if domestic wheat prices are rallying sharply there.  Most think they’d only need to import 100-200,000MT, which wouldn’t materially change world export/import grids.  Australia and Canada mopped up the milling wheat business over the weekend, and Canada’s exports YTD are running at 8.18MMT vs. 7.0MMT on the 5-yr average.  Contrary to popular believe, however, it wouldn’t appear there is more Canadian wheat moving south to the US than normal.  We just really don’t have an export program and therefore have plenty of wheat to cover domestic needs.  The average spring wheat farmer is thought to still be sitting on 60-70% of his crop, a tremendous amount to move ahead of next year’s harvest, especially if it decides to move all at once.  Farmers seem to want $9.00 futures.

The Commitments of Traders Data offered some interesting observations as pointed out in the email sent earlier.  Commercial Gross Longs (end users) continue to gobble up Chicago Wheat, pushing their position to a new record.  This while the funds are still short.  Maybe futures do have more upside to go, but wouldn’t want to be long basis or spreads if we do, because they should get sloppy.

KC protein scales didn’t change with 12.0% at +87/102H.  Gulf values were mixed, but bids were 2-5c firmer with spot SRW barges at +68/78H and Feb boats at +74/80H.  HRW was unchanged at +116/122H.  Really odd how HRW exports have been really sub-par this year, but HRW basis has maintained numbers well over +100, and even well above +110 at times.  How basis continues to be propped up despite no demand is truly interesting.  Wheat calendar spreads were uniformly weaker with the MWH/MWK inching out 0.25c to -11.50c.  There was a fair amount of trade at -12.00c, and it should continue to get weaker.  Lots of wheat around, so-so basis levels, new vomo specs, new storage rates, no desire to own the wheat and heavy deliveries against the Dec which could be re-delivered.

Soybeans

Sharply better from the get-go last night, and the main cause for the strength in the Ag room.  South American weather over the weekend seemed to be the catalyst as were forecasts for mainly dry weather in Argentina the next 10-days.  This prompted renowned oilseed analyst Oil World to cut their Argentine soybean production estimate, the first major firm to do so.  Combined with mounting vessel lineups in Brazil, and a rain delayed harvest, and we had plenty of reason to buy the board.  Funds having pared their positions to the smallest levels in nearly a year also allowed that group plenty of room to buy.  Technicals are flipping over to the bull side as well, drawing trend followers off the sideline.  $15.00 looks like the next logical target and probably where this market is headed.

Export inspections were strong this week at 48.1mbu vs. 41.3mbu last week and the 13.5mbu needed weekly to hit the USDA’s export forecast.  Shipments to date are up 34.3% over last year at this time.  Aside from a small chance Friday, midday weather maps didn’t have much for precip in the concern areas of Argentina.  Below are the 6-10 day maps of both the GFS and European model.  Neither one holds much promise through February 1st, but note the fairly substantial rainfall in N-Brazil where harvest is taking place.  The vessel to load soybeans is now 770,108MT, or 14 boats.  In addition, there are 12 boats to load meal and 16 to load soy pellets.  Brazilian basis levels were 2c weaker today with Feb at +62H and Mar at +58/70H today, but these have been trending firmer as of late.  Logistics and weather will be the keys to US swing business Mar 1 forward.  Oil World cut their estimate of Argy bean production 1MMT to 52MMT.  The USDA is currently estimating that crop at 54MMT.  Agroconsult sees Brazilian bean crop at 83.95MMT, unchanged.

CIF bids were on the defensive again today with spot barges at +96H, down 4c from Friday while Feb barges were unchanged at +83H.  Illinois River basis is 35c over delivery for Jan, 6.9c under for Feb and back to 15.1c above for March.  The wide disparity month to month is probably behind the SH/SK weakness which fell 0.75c to +11.75c today and is down from +17.50c 2-days ago.  Oct and Nov saw decent trading volume today with October seeing close to 1mbu today alone.  Some think this is Sinograin buying the back end of the inverse for strategic reserves.  PNW shuttles are +160/165H, unchanged.  There were 120,000MT of optional origin soybeans sold to China for 13/14 delivery this morning.  Crushers looked steady today with Mankato +4H nearby.





Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
CHS Hedging, Inc.
The Right Decisions for the Right Reasons

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