Wednesday, February 13, 2013

Afternoon Recap from CHS Hedging's Tregg Cronin 2-13-2013

Outside Markets as of 1:00: Dollar Index down 0.025 at 80.081; NYMEX-WTI down $0.24 at $97.27; Brent Crude up $0.08 at $118.74; Heating Oil down $0.0178 at $3.2184; Livestock markets are mostly weaker led by feeders down 1.50%; Softs are pretty mixed; Gold down $7.50 at $1642.10; Copper down $0.0035 at $3.7405; Silver down $0.229 at $30.795; S&P’s are up 1.75 at 1518.00, Dow futures down 17.00 at 13,956.00 and Treasuries are soft.   

Mostly better than expected economic today supported, but equities consolidated near recent levels.  Investor sentiment remains overwhelmingly bullish, and susceptible to correction.  The biggest surprises were several moves in the forex market after Bank of Englad chairman Mervyn King said the Bank would continue to support the economic recovery, even if it meant higher inflation.  This trounced the pound and sent pound/dollar to $1.5538, the lowest level since 8/3/12.  Pound/Krona fell to the lowest levels since 1992 and Pound/Kiwi fell to the lowest level on record.  The Argentine 5-yr Credit Default Swap rallied 304bp to 2,519bp, the highest since November 28th.  Not sure what the recent developments there are, but something to monitor.


Lower with our ninth consecutive lower close which is the longest streak of lower closes since December of 1980.  That’s right, the longest lower streak in 32 years.  In September of 2008, we had 8 lower closes and one unchanged, so this would technically be longer.  New crop managed a higher close for the second day in a row, but we just can’t seem to spark speculative interest in our Ag space right now.  Better weekly ethanol production, lighter ethanol stocks, firmer basis, firm spreads and no movement has yet to spark buying, and index funds are coming out based on their holdings as a percent of total open interest.  The news of Barclays getting out of either hedge fund trading or index fund trading has the market a bit spooked we could see other banks make similar moves…

Weekly ethanol production totaled 789,000bbls/day, up 15,000bbls/day from a week ago, and the highest production total in three weeks.  Stocks fell by 598,000bbls to 19.500 million bbls, which also was a positive signal.  With margins slowly improving, and thought positive by $0.37/bu vs. $0.09/bu a week before, chatter has a couple more ethanol plants coming back on line.  Obviously the ability to source corn, based on the price require to obtain it, has a big say as does the integrated nature of these plants and whether they can extract corn oil.  Imports did rise to 11,000bbls/day from zero the week before, however.  Brazilian corn lineups continue to shrink with current reports putting it at 1.33MMT vs. 2.09MMT a week ago.  Some analysts are still optimistic for better exports Mar-Jun.  Also interesting to note the crude oil/corn ratio and the RBOB Gasoline/Corn ratios are at their highest levels since June thanks to the run up in energy and the selloff in corn.  Board cattle crush for August is at the highest level since November.

CIF corn bids continue to rally with no offers really visible.  There are no trades to report either, so will keep using +65H through FH-Mar and +63H for LH-Mar.  Still puts Illinois River basis 9.7-12.5c above delivery equivalence.  Should continue to promote CH/CK bullspreads up to a dime assuming farmer movement remains slow and economics remain the same.  Rail markets continue to scoot higher as well with +120H widely bid off the PNW, +20H for Group 3 rail and Hereford, TX said to be trading +100/102H.  ADM-Marshall is firm at +5/8H, Decatur is paying  somewhere around +40H and Clinton is +34H for quick ship trucks.  The CH/CK traded all the way to +3.75c before closing at +1.50c, but should retain a firm bias.  CN/CZ fell another 4.0c to +120.00c, the lowest since Jan 11.


Wheat closed higher for the first time since Friday, pumped up on “oversold” technicals, rumors of export business to China, firmer cash markets at the Gulf and a continued lack of movement on all classes of wheat.  Most seem to be expecting a solid week of export sales tomorrow considering the rumors of business to Turkey, Egypt, Europe, Brazil and China.  The fresh one today was some spring wheat connecting to the Orient off the PNW today, although details were sparse and there was no one to definitively say it was US-HRS vs. CWRS.  The market also seemed to absorb the moisture event across OK/TX from the day before, but isn’t quite ready to accept a change in moisture patterns across all of HRW country.  There is business around, just not sure how much we’re doing yet.

Headlines included Egypt coming out proclaiming they have enough wheat to meet domestic consumption for 133 days.  Total stocks of domestic and imported wheat total 3.28MMT.  This doesn’t mean they won’t import again, and in fact, usually one of these reports is followed by a tender announcement.  Egypt will still buy if the price is right, just announcing they have ample stocks should they need to get by.  French wheat plantings are expected to rise 2% y/y, while Germany is expected up 3% according to FranceAgriMer.  Jordan is tendering for 100,000MT, Iraq bids are due today with validity until Feb 17 on 50,000MT.  British analysts said wheat plantings in that country are expected to be smaller than the November estimate of 1.756 million hectares due to wet conditions.  “The wheat crop in general isn’t in great shape.”  Also why they’re expected to import wheat again in 13/14, the first back to back years since at least the early 90’s.

Spot floor trades were lightly mixed with 14.0% at +100H.  15.0% is +100/110H.  Spot floor report says there were 93 cars including 3 trains which would be heavier than recent days.  To-arrive bids remain around +90/95H for exploders and around 10-15c less on shuttles.  In figuring delivery calculations on spring wheat, it is getting very close to being able to take delivery in Duluth and rail against the Chicago market.  Triple digit to-arrive bids would likely make it work, and therefore would be where the commercials would rather buy the MWH/MWK than pay the country.  In other words, take a look at rolling any basis length and short hedges forward still remaining at current market levels.  Might leave a penny on the table, but better than getting run over by the commercials.  Wheat/corn spreads rallied today, but remain in recent ranges.  SRW/Corn at +40.00c is probably still priced to feed as is HRW/Corn at +84.75c.  Gulf basis was firmer with SRW up 2-3c to +80/83H bid, while HRW as around 1-2c lower but still bid +125/130H.

Ran out of time for soybean commentary.  Make up for it tomorrow.

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

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