Wednesday, January 23, 2013

Afternoon Recap from CHS Hedging's Tregg Cronin


Outside Markets as of 1:20: Dollar Index up 0.079 at 79.953; NYMEX-WTI down $1.47 at $95.22; Brent Crude up $0.23 at $112.67; Heating Oil up $0.0007 at $3.0689; Livestock markets were mixed with cattle firmer and hogs weaker; Softs are firmer; Gold down $8.20 at $1685.20; Copper down $0.0225 at $3.6825; Silver up $0.073 at $32.250; S&P’s are down 0.75 at 1488.75, Dow futures up 25.00 at 13,721.00 and Treasuries are flat.

The highlight of financial markets today was probably the vote in Congress today on raising the debt ceiling.  The latest reports said it would most likely pass, but the interesting thing was the rider House Speaker Boehner attached to it.  Apparently he added an amendment that said until Congress passes a budget, there will be no pay for the legislators.  Hopefully it sticks and passes, and has some teeth of enforcement.  Otherwise, the drop in crude oil was probably most noteworthy as capacity on the Seaway pipeline was reduced and the International Monetary Fund cut is global growth forecasts.  Wholesale gasoline remains at $2.8300 on the board.


Very choppy trade on a low-volume session which saw prices two-sided before selling pressure showed up to drop corn to the lowest level in 7-sessions.  If one is looking for the news behind the selloff, they likely won’t find it.  Farm movement was limited at best, and not behind the sell pressure.  Calendar spreads were weaker, however, so there did seem to be some commercial influence behind the sell flow.  Others also cited the expectation for another poor week of ethanol production when that data is released tomorrow, and probably another slow week of export sales on Friday.  The idea of the US being unable to slow it’s feed demand won’t be much of an issue if we continue to post ethanol and export numbers like we did last week until March 1st.

Friday will see the Jan 1 Cattle on Feed report released after the market close with analysts looking for Jan on-feed at 95.8% of a year ago.  Placements are forecast at 104.1% during December, and marketings are seen at 93.2%.  On its face, it would look like a bearish-cattle, bullish feed-demand report.  No reason to argue with the average trade estimates, although one well respected analyst is looking for even larger placements and smaller marketings.  The National Weather Service said the stretch between STL and Cairo will remain navigable through February 20th.  From a pure technical standpoint, March corn ran into its 61.8% retracement of its 7.67-6.78 sell off at 7.33 and was never really able to penetrate it.  The short-term trend is down with support seen at $7.07.

CIF bids weakened further today with spot barges down 2c to +52H, Feb down 2c to +55H and Mar steady at +60H.  Illinois River basis continues to weaken with spot now 6.8c below DVE and Feb 1.3c below.  Should continue to apply pressure to the CH/CK as it did today.  The CH/CK closed at -2.00c, down 0.25c.  Saw some small commercial elevator bullspreading, but most elevators are either patient waiting for -3.00c+ or don’t have an incredible amount of basis length to push to May.  The CN/CZ closed down 5.75c to +126.50c.  The 6-month RBOB/Ethanol strip closed at $0.58/gln, providing plenty of incentive to keep blending ethanol if refiners aren’t opting for Brazilian sugarcane ethanol.  PNW corn shuttles stabilized at +110/112H, but Grp-3 was weaker, down to +10/15H.


In a somewhat surprising reversal, wheat went from lower overnight to higher during the day session, only to sell off along with corn and soybeans and close lower.  Like yesterday, there wasn’t an overabundance of news to really drive wheat prices, but newswires wanted to talk about the better forecasts for this weekend and in the extended outlook which promise to bring precip to the parched southern plains region.  E-KS has chances this weekend for 0.60”, but not much for the majority of the HRW belt.  Otherwise, there wasn’t any export business to speak of, and the clock is ticking on the US program.  The chatter in the news about Russia removing the 5% import duty on wheat offered fodder for writer’s, but not much else.

Demand for spring wheat seed in the United Kingdom has risen to a record after rains prevented farmers from planting during the autumn.  The wet conditions restricted fall cultivation, and prevented seed bed prep.  Ukraine’s grain stockpiles as of Jan 1 were 8.4MMT, including 5.8MMT of milling wheat according to the Ag Minister.  Corn stockpiles were 13.8MMT and barley at 5MMT.  Ukraine needs 2.6MMT of milling wheat for domestic consumption before the 2013 harvest starts.  India continues to sell feed and milling varieties and are one of the main causes for the US program remaining subdued.  Wheat has rejected the 38.2% retracement of the 8.95-7.36 sell off at 7.97 basis Chicago futures.  Short-term trends are down without much in the way the next 20-30c.

Spot floor trades in Minneapolis were up 10-15c with 14.0% at +75/100H, while 15.0% was seen at +110H.  There were 55 cars on the floor.  KCBT protein scales were unchanged with 12.0% at +87/102H.  SRW barges were unchanged at NOLA while HRW slipped 2-7c on the bid side to +117/118H through May.  Calendar spreads could be called uniformly weaker as the MWH/MWK closed down 0.25c to -12.00c.  This spread traded as wide as -12.25c, but opinions are split on how wide it might go.  The general opinion is with elevators note toting a lot of basis length, and the new vomo specs/storage rates it works wider.  However, the specs appear to be the only one’s long the spread, so waiting for -14.00/-15.00+ might get lonely.


Big reversal day in soybeans, giving back almost all of the previous day’s gains and taking out yesterday’s low.  Odd was the fact movement of soybeans yesterday was much heavier than today, prompting some to question whether yesterday’s buying was fund purchases or export pricing?  The heavy weakness in the calendar spreads today would suggest there was commercial participation on the sell side.  The fact is the bulls need/want to focus on South American weather which is nearly ideal for Brazil and a bit drier/warmer than wished for in Argentina.  Yet, neither country has an outright disaster, and until we’re talking about a 4-6MMT reduction in the forecasts from the USDA, going to be tough to go up every day.  It’s still very early for both bears and bulls.

Midday forecasts kept a light rain chance in for this weekend, although accumulation isn’t expected to be large.  Generally under 0.30”.  The 6-10 is what most are focusing on with chances in the main growing regions.  See 6-10 GFS map below.  The Euro 6-10 wasn’t quite as generous and kept rains farther west. (Also below).  Brazil remains awash with rain throughout, a limited concern.  Still plenty of people concerned about where we’ll be able to buy beans and therefore meal later this spring and summer.  Some analysts already doing the math for importing beans from Brazil.  Basis in some slots in Brazil were firmer; others weaker.  Call it a wash w/w.  No real technical damage done to bean charts today.  $14.21 would be a downside trigger for additional selling pressure.

CIF bids were softer again today with spot NOLA barges down 1c to +95H, Feb unchanged at +83H and Mar down 1c to +72H.  Surprisingly, river basis remains well above delivery for spot boats at +35c, but drops below delivery equivalence by 6.9c for Feb to go back above delivery by 15c for March.  April through July Illinois River basis is 12.8-15.1c above delivery equivalence which illustrates how tight the bean market is perceived to be, despite the fact exports should taper off quite rapidly Mar 1 forward.  Many traders looking for the SN/SX to make a run at $2.00 from its current level of +115.75c.  New crop river basis is also pushing above delivery equivalence for Nov/Dec as cash traders suggest Sinograin is buying on the back end of the inverse.  Nice to know where they see value.  SH/SK fell 2.50c to +10.00c thanks to the sloppy front-end on the river.  PNW basis is also said to be a little softer, but elevators just aren’t confident about dumping what length they do have or even going short in any meaningful tonnages.  Where does the farmer sell?

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

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