Thursday, January 3, 2013

Afternoon Recap from CHS Hedging's Tregg Cronin for 1-3-13


Outside Markets: Dollar Index up 0.291 at 80.136; NYMEX-WTI up $0.04 at $93.16; Brent Crude down $0.19 at $112.28; Heating Oil down $0.0221 at $3.0242; Livestock prices are firmer led by cattle; Softs are quite a bit weaker following yesterday’s losses; Gold down $14.60 at $1674.30; Copper down $0.0255 at $3.7105; S&P’s are down 2.00 at 1455.00, Dow futures are down 13.00 at 13,319.00 and Treasuries are selling off at the 1:00 hour.

Equities were incredibly quiet today with most focusing on the new Congressional members bring sworn in.  Speaker Boehner retained his leadership position, so the same guys will be in charge for the debt ceiling fight in a couple months.  Treasuries broke hard when the latest FOMC meeting minutes were released.  The cause seemed to be comments from several committee members suggesting asset purchases (government treasuries) should be cut or halted well before the end of 2013.  Treasury bonds are down 0.73%.  The Dollar Index really rallied in the last hour the grains were open pushing up 500 ticks.


Two-sided trade, but mainly lower as corn flirted with filling its gap again today, falling short by 1.75c.  The bright side of corn continuing to chop “down here,” is that it’s losing downside momentum, and seems to be trying to build a base from which to rally off.  The reasons behind the selloff haven’t changed: no export demand, spill over pressure from soybeans, nearly ideal South American weather and uncertainty ahead of the Jan 11 reports.  Personally, I think there are reasons to be optimistic corn prices coming out of the Jan 11 reports, but right now the trends are down and the managed money is behind that trend.  Oddly, open interest did rise 16,000 contracts during yesterday’s sell off, a technical negative.  Corn closed above its 200-day moving average which is at $6.83 5/8.

The Buenos Aires Cereals Exchange posted its weekly publication, showing corn planting at 82%, 2% behind a year ago.  Corn planting area was left unchanged at 3.4 million hectares.  The exchange was quoted as saying corn growth has been healthy.  The USDA is still pegging their corn crop at 27MMT, while many privates are between 22-25MMT.  Another article made note of the reduced traffic down the Miss.  Through the week ended Dec 29, 325,625MT of grain moved by barge, down 26% from the week before.  Obviously this was a holiday shortened week, but only 199 grain barges moved on the river, a small figure.  Ethanol and export data will be delayed until tomorrow.  Farmer movement was very light today as most wait for a bullish report on Jan 11.

Cash markets were quiet today with spot barges offered at +67H.  Feb bids are +63H.  Several ethanol plants were firmer today including Decatur which was up 2c to +9H for trucks.  Rail is still likely well above that.  PNW shuttle bids continue to post +110/114H, but isn’t drawing a ton of interest from upper-Midwest shippers.  Based on basis quotes, would appear any strength is due to lack of movement from farmers refusing to sell these prices.  Export demand still hasn’t surfaced with SAM FOB quotes still under US by $8-10/MT.  Feed/residual demand has the best potential to be higher on the next report.  Total meat production is forecast down 2.2% vs. feed/residual down 9.2%.  Something’s gotta give…


Wheat exhibited the least amount of weakness today and actually managed to trade all three exchanges positive at times.  A very late selloff saw prices slip negative late.  Most market pundits continue to make mention of the fact US-SRW/US-SWW are competitively priced into almost every mill in the entire world where applicable.  In addition, wheat/corn spreads have tightened up to the point of putting wheat into TX cattle yards, again, where applicable.  With that in mind and wheat holding some temporary support, it seemed good enough for a light bounce.  Trends are still down on all applicable scales, but the demand component for wheat seems to be picking up.  Midday model forecasts are putting a fair amount of moisture into the southern plains during the 6-10 day time frame.

The Buenos Aires Cereal Exchange estimated wheat yields at 23% less than last year’s crop, and they also maintained their production forecast at 9.8MMT vs. the USDA at 11.5MMTThey estimated wheat harvest at 79% complete, 14% behind a year ago.  We’re still waiting on Brazil to source a big slug of US feed wheat or milling wheat, a sign Argentina’s crop really is in dire shape.  Still some miffed about the lack of tender business despite wheat’s break.  Egypt is notable absent, and even our stalwarts like Japan, Thailand, Taiwan and South Korea are not tendering this week.  Like corn, open interest did rise 6,000 contracts, again a technical negative.  KC-HRW held the 50% retracement of the entire 6.64-9.62 rally at $8.13 today, a short-term positive.

Cash markets were quiet with SRW at the Gulf unchanged at +80/90H through March.  HRW was also unchanged at +120/125H.  Minneapolis to-arrive basis did firm 5c yesterday with spot exploders big +70H.  There are more elevators kicking tires for moving spring wheat now that the board has dropped and basis has perked up a bit.  Should wheat decide to rally 40-50c, basis could get sloppy.  Calendar spreads were firm all day long, and definitely preceded the futures rally.  The WH/WK was up 1.25c to -9.50c, the KWH/KWK was up 1.00c to -8.75c and the MWH/MWK was up 0.25c to -10.00c.  All of these spreads are off the lows put in last week.  Wheat/corn spreads tacked on 2-6c after hitting contract lows in a few spots yesterday.  I don’t want to be short wheat/long corn down here.


Another day of selling pressure, although prices did manage to bounce off the lows into the close with wheat and corn.  Severe technical damage has been done the past few days with little for support seen until the November lows near $13.50.  Favorable weather in Brazil, early harvest of soybeans, the cancelation of 315,000MT of beans by China this morning and ugly looking charts continue to keep a foot on soybeans.  Unfortunately, despite the recent liquidation, funds are still seen carrying around over 60,000 contracts worth of length.  Soybeans seem to be tracking similar to last year when we sold off into the Jan reports only to rally $2 out over the next several months.  Obviously that was because of SAM drought, something we don’t have a problem with this year.

The BACE estimated soybean planting at 85% complete with area unchanged at 19.7 million hectares.  Farmers did not the first signs of soybean disease, almost surely because of the excessive rain during December.  Argentina is expected to see a pickup in the heat next week, but most see it as welcome to help dry up trouble spots.  The only trouble spot in Brazil is in the northeast, and even that only amounts to a few million tonnes that are really in jeopardy.  Even that spot looks to see better chances of rain in the 6-10.  The real concern with South America at this point is logistics and executing the massive corn, meal and soybean program we need them to from Mar-Aug, not the weather.

Cash markets at the Gulf were  unchanged with spot boats at +115H while LH-Jan was +110H.  A notable changed from yesterday has been better transparency on barge freight.  Quotes are available today all the way out the curve with the Illinois seen at 450%/450%/425%/350% for FH-Jan/LH-Jan/Feb/Mar.  For whatever reason, there seems to be more confidence about the river staying open which is odd considering the river forecast and it falling below -5.0ft by Jan 12.  The availability of freight seemed to give shippers a bit more confidence, hence the strength in the spreads today.  The SF/SH was up 3.25c to +16.50c, and the SH/SK was up 0.25c to +8.25c.  The PNW was unchanged at +150/153H.  Crush plants are seen steady/better as beans simply aren’t moving.  Farmers want $14.00 cash.


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


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