Wednesday, February 27, 2013

Afternoon recap from CHS Hedging's Tregg Cronin 2-27-2013

Outside Markets as of 2:00: Dollar Index down 0.256 at 81.607; NYMEX-WTI up $0.16 at $92.79;  Brent Crude down $0.81 at $111.90; Heating Oil down $0.0388 at $2.9929; Livestock markets are mixed with cattle up and hogs down; Softs are firmer led by Cotton which is up 3.35%; Gold down $22.60 at $1592.90; Copper down $0.0085 at $3.5745; Silver down $0.445 at $28.875; S&P’s are up 24.75 at 1516.75, Dow futures are up 200.00 at 14,060.00 and Treasuries are weaker.

Taught classes this morning, and in meetings this afternoon, so just a few comments on cash and spreads with some articles below worth a look through.

Markets continuing their rallies today on lack of farm gate movement, still firm cash markets, export business, rebounding ethanol production and most likely some light profit taking in the wheat pits.  The close wasn’t incredibly strong, and May corn failed to close above the vaunted $7.00 level.  $7.01 kick starts technical buying. Ethanol production continues to see a rebound in weekly production, poking back above 800,000bbls/day for the first time in seven weeks.  Stocks declined slightly, but remain rather large.  The improvement in margins has gotten plants back open, and the basis reflects their desire to get corn bought.  Still lots of ethanol plants in IL/IA paying +50K or more for trains, but the demand seems to be for AMJJ.  Truck corn might be a bit weaker at some.  Wheat’s discount to corn is starting to perk up the interest of a lot of feed lots both in the US and abroad.  Japan was in for SRW as feed wheat, the first time in quite a while.  KS/CO feed lots interested in HRW.  SRW working into southeast markets.  Isn’t whacking corn basis severely yet, but likely isn’t far off.

PNW spring wheat basis firming up with cash guys calling it up 20c vs. two weeks ago.  Doesn’t appear to be the guys who sold the Chinese business two weeks ago, so hard to tell if it is covering business already on the books, or if this is fresh demand.  To-arrive bids over Chicago not showing much life this afternoon, so would assume we have plenty of wheat to put out any fire.  A basis selling opportunity seems to be right around the corner on wheat.  Lots of wheat left on farm.  MWH/MWK rallied late, closing up 0.75c to -9.00c, but traded all the way into -7.50c as guys bought the spread instead of pumping up basis any further.

Dr. Michael Cordonnier said he expects Brazilian yields to fall as harvest progresses, not rise.  Deutsche Bank was in the news putting the Brazilian soy crop at 79-80MMT, by far the lowest in print and well under the USDA’s 83.5MMT.  Two cargoes to China for 12/13 and two cargoes to unknown for 13/14.  Fits with the business bantered about late last week.  The export pace we’re on is unsustainable.  Brazilian basis levels continue to fall, but this seems to be tied to importers refusing to pay up because they won’t get beans no matter what they pay, so why bid it?  Lineups on soy grow every day as you can see below.  Total soy and products lineup is 9.467MMT vs. 8.643MMT last week.  Corn lineup is 1.194MMT vs. 1.464MMT last week.

Shouldn’t be any deliveries against March corn or soybeans, but there are 1,882 March Chicago Wheat delivery certificates on the street, and these could see deliveries potentially.  Wouldn’t think there would be any spring or winter deliveries considering the basis is firm enough and works by 15-20c to load wheat out.

Deutsche Bank Says Brazil Soybean Crop May Be 79-80 Million Tons
2013-02-27 07:23:31.183 GMT

By Claudia Carpenter
     Feb. 27 (Bloomberg) -- Brazil’s soybean crop for 2012-13
may be 79 million to 80 million metric tons and corn 70 million
to 71 million tons, below the U.S. Department of Agriculture
estimates, Deutsche Bank AG said.
     Competition for soybeans to export in Brazil is “fierce”
as crushers and hog and chicken industries also want supplies,
Christina McGlone, an analyst at the bank in New York, said in a
report dated yesterday. The USDA’s estimates are 72.5 million
for corn and 83.5 million tons for soybeans.
     Supply is limited at ports because of delayed plantings,
late harvesting due to wet weather, new trucking regulations,
unrest with port workers and vessel line-ups, she said. That may
spur demand for U.S. supplies for now, she said.

China Buys U.S. Corn as Mold to Hit Local Supply, Yigu Says (1)
2013-02-27 07:32:25.332 GMT

     (Updates price in fifth paragraph.)

By Bloomberg News
     Feb. 27 (Bloomberg) -- Feed mills in China, the second-
biggest corn consumer, will probably order more U.S. grain on
concern that domestic supply won’t meet demand before the fall
harvest, researcher Yigu Information Consulting Ltd. said.
     Snow and rain in northern China have increased moisture in
farmers’ unsold grain, making it more vulnerable to mold and
less suitable as animal feed, said Feng Lichen, the general
manager of Yigu, which runs China’s biggest corn information
portal. Some mills are securing shipments from the U.S., the
biggest exporter, for deliveries later this year using newly
issued import permits from the government, as the cost of U.S.
corn has dropped, he said.
     China’s purchases may help stem an 18 percent decline in
Chicago prices from a record in August. The U.S. crop will be an
all-time high following the worst drought in seven decades, the
U.S. Department of Agriculture said on Feb. 22. Chinese mills
bought at least 120,000 metric tons from the U.S. last week, the
first purchases this year, two executives with direct knowledge
of the matter said on Feb. 22. U.S. corn exporters sold 127,000
tons to unknown buyers last week, the USDA said.
     “China’s corn shortage this year may widen to 5 million
tons from a previous projection of 2 million tons,” Feng said
by phone on Feb. 25 from Dalian in northeastern China, the port
city in the country’s biggest corn-growing region. “The crops
are just too wet, so as soon as the weather warms up next month,
mold will grow,” he said.

                          China Harvest

     The most-active contract on the Chicago Board of Trade has
lost 6.9 percent this month and was at $6.93 a bushel at 3:37
p.m. in Beijing.
     Traders are quoting prices between 2,220 yuan ($356) and
2,250 yuan a ton for September shipments of U.S. corn, including
freight costs, Zhang said. Futures for September delivery closed
at 2,433 yuan a ton on the Dalian Commodity Exchange.
     The USDA had said on Feb. 9 that China’s harvest in the
marketing season from Oct. 1 rose to a record 208 million tons,
cutting possible imports to 2.5 million tons from last year’s
5.23 million tons.
     Purchases by feed mills may have totaled more than 200,000
tons since last week, Cherry Zhang, an analyst at Shanghai JC
Intelligence Co., said Feb. 25. Buyers will proceed cautiously
on concern that U.S. prices may drop more, she said.

COFCO Gets $4.8 Billion Funding to Expand China Grain Processing
2013-02-27 05:10:27.984 GMT

By Bloomberg News
     Feb. 27 (Bloomberg) -- COFCO Corp., China’s largest grains
trader, said it will receive 30 billion yuan ($4.8 billion)
financing from China Development Bank Corp. to boost processing
and shipping of grains and oilseeds.
     The state-owned company will receive the money over the
next five years and use it to ensure the supply and safety of
grain and cooking oil, and for rural financing ventures to
promote development in farming areas, the Beijing-based company
said in an emailed statement today.
     COFCO is the parent of Hong Kong-listed China Agri-
Industries Holdings Ltd., the country’s second-biggest soybean
processor, and China Foods Ltd., the second-largest cooking oil

Egyptian Wheat Stockpiles Will Satisfy 123 Days of Consumption
2013-02-27 11:28:12.198 GMT

By Abdel Latif Wahba
     Feb. 27 (Bloomberg) -- Egypt has 3 million metric tons of
domestic and imported wheat in stockpiles, enough to meet
consumption for 123 days, the cabinet said.
     Inventories of domestic and imported sugar are about
290,000 tons, sufficient to satisfy 71 days of local demand, the
cabinet said today in an e-mailed statement. The government has
142,000 tons of domestic and imported food oil on hand, enough
to meet consumption through the middle of May, it said.

Russia Grain Stockpiles to Fall to Record Low by July 1: SovEco
2013-02-27 09:42:13.246 GMT

By Marina Sysoyeva
     Feb. 27 (Bloomberg) -- Russian state grain stockpiles may
fall to 600,000-700,000t by July 1, SovEcon General Director
Andrey Sizov says at Grain Producers’ Union in Moscow.
  * Russian winter crop losses seen at 12%, Sizov says
  * Russian grain, legumes exports reach 14.3mt so far in season
    from July 1, Sizov say
  * Russian grain, legumes exports seen at 500,000 tons in Feb.
  * NOTE: 6.5% of winter crops failed to sprout or were weak at
    the end of February 2011; harvest was 94.2mt that yr, Sizov

China Soybean Inventory May Decline to 4m Tons, Grain.Gov Says
2013-02-27 02:11:32.122 GMT

By Bloomberg News
     Feb. 27 (Bloomberg) -- China’s inventory of soybeans may
fall to 4m metric tons by end-March from 5.2m tons as of last
week, said in an e-mailed report.
  * Arrival shipments may be about 7m tons in Feb.-Mar., lower
    than 8.66m tons a year ago, it says
  * Shipments may rise starting from April as supplies from
    South America increase, it says.

U.S. Corn Export Sales Seen Declining in Week Ended Feb. 21
2013-02-27 18:49:24.476 GMT

By Jeff Wilson
     Feb. 27 (Bloomberg) -- U.S. export sales of corn probably
fell in the week ended Feb. 21 from a year earlier, while
soybean-meal and soybean-oil sales rose, based on a survey of
five analysts by Bloomberg News. Estimates for sales of wheat
and soybeans ranged from below to above a year earlier.
     The U.S. Department of Agriculture is scheduled to release
its sales report at 8:30 a.m. tomorrow in Washington.

                        U.S. Export Sales
              Estimate Range        Feb. 14, 2013  Feb. 23, 2012
Corn         125,000-400,000           361,826       689,959
Soybeans     300,000-700,000          (119,526)      549,108
Soybean Meal 125,000-300,000           236,132        40,016
Soybean Oil   10,000-30,000             28,872         4,769
Wheat        350,000-900,000           699,257       414,070

U.S. Exporters Sell Soybeans to China, Unknown Destinations
2013-02-27 14:00:00.2 GMT

By Patrick McKiernan
     Feb. 27 (Bloomberg) -- The sale of 120,000 metric tons to
China is for delivery in the 12 months starting Sept. 1, and the
sale of 120,000 tons to unknown destinations is for delivery
before Aug. 31, the U.S. Department of Agriculture said today in
a statement.

Corn Spread Surges on Tight Pre-Harvest Supply: Chart of the Day
2013-02-27 00:00:00.5 GMT

By Jeff Wilson
     Feb. 27 (Bloomberg) -- Tightening U.S. corn inventories
will triple the spread between May and July futures in Chicago
as buyers scramble for pre-harvest supplies, according to Water
Street Solutions Inc., a researcher and farm-marketing adviser.
     The CHART OF THE DAY shows futures for May delivery on the
Chicago Board of Trade will surge to a premium of 45 cents a
bushel over the July contract, compared with 15.75 cents
yesterday, based on a forecast by Arlan Suderman, the senior
market analyst at Peoria, Illinois-based Water Street Solutions.
The spread would match the peak between the contracts last year,
when the worst drought since the 1930s sent prices to a record.
     While the government said Feb. 22 that U.S. farmers will
boost output by 35 percent this year as yields return to normal,
that grain won’t reach buyers for another six months.
Inventories before the harvest will be the lowest relative to
demand since 1974, U.S. Department of Agriculture data show.
     “U.S. corn supplies are forecast tighter than they were a
year ago,” Suderman said in a telephone interview yesterday
from Wichita, Kansas. “It’s all about rationing the reduced
supply from last year.”
     Demand for corn used as livestock feed and to make ethanol
has probably accelerated after prices tumbled to a seven-week
low of $6.8075 on Feb. 25, Suderman said. The USDA said last
week that domestic pork and poultry output in 2013 will rise 0.7
percent. A government mandate calls for refiners to use 13.8
billion gallons of ethanol this year, up from 13.2 billion last
year. Corn prices have tumbled 18 percent since reaching a
record $8.49 on Aug. 10 as output rose in South America and
prospects improved for a rebound in U.S. production this year.
     “There is a real concern among consumers that the U.S.
won’t have many bushels left before the harvest,” Suderman
said. “The spread will widen now to slow demand and maintain
adequate inventories before the harvest.”

Brazil Daily Soy Shipments From Major Ports: Summary (Table)
2013-02-27 15:26:16.581 GMT

By Dominic Carey
     Feb. 27 (Bloomberg) -- Following is a table detailing scheduled soybean
shipments for vessels berthed, arrived or expected at major ports in Brazil,
according to SA Commodities in Santos, Brazil:
                    Feb. 27   Feb. 26   Feb. 25   Feb. 22   Feb. 21   Feb. 20
                       2013      2013      2013      2013      2013      2013
                   ------------------------# of Ships-------------------------
Soy total               164       162       156       157       150       149
Soybeans               124       123       116       116       108       109
Soybean oil              1         1         1         0         0         0
Soybean meal            12        12        12        13        15        14
Soy meal pellets        27        26        27        28        27        26
                  ------------------------Metric Tons-------------------------
Soy total         9,467,669 9,298,669 9,067,308 9,250,123 8,785,072 8,643,572
Soybeans         7,459,979 7,358,979 7,068,068 7,099,068 6,676,518 6,643,018
Soybean oil          5,000     5,000     5,000         0         0         0
Soybean meal       533,989   533,989   533,989   633,804   651,303   603,303
                    Feb. 27   Feb. 26   Feb. 25   Feb. 22   Feb. 21   Feb. 20
                       2013      2013      2013      2013      2013      2013
Soy meal pellets 1,468,701 1,400,701 1,460,251 1,517,251 1,457,251 1,397,251

Brazil Daily Corn Shipments From Major Ports: Summary (Table)
2013-02-27 15:26:06.668 GMT

By Dominic Carey
     Feb. 27 (Bloomberg) -- Following is a table detailing scheduled corn
shipments for vessels berthed, arrived or expected at major ports in Brazil,
according to SA Commodities in Santos, Brazil:
                  Feb. 27   Feb. 26   Feb. 25   Feb. 22   Feb. 21   Feb. 20
                     2013      2013      2013      2013      2013      2013
Ships scheduled        24        27        28        27        26        32
Metric tons     1,194,631 1,337,631 1,372,631 1,308,923 1,248,923 1,464,903

Egyptian Wheat Stockpiles Will Satisfy 123 Days of Consumption
2013-02-27 11:28:12.198 GMT

By Abdel Latif Wahba
     Feb. 27 (Bloomberg) -- Egypt has 3 million metric tons of
domestic and imported wheat in stockpiles, enough to meet
consumption for 123 days, the cabinet said.
     Inventories of domestic and imported sugar are about
290,000 tons, sufficient to satisfy 71 days of local demand, the
cabinet said today in an e-mailed statement. The government has
142,000 tons of domestic and imported food oil on hand, enough
to meet consumption through the middle of May, it said.

Ethanol Rin Credits Jump to Record 51 Cents, Blue Ocean Says
2013-02-27 19:23:28.99 GMT

By Mario Parker
     Feb. 27 (Bloomberg) -- The value of Renewable
Identification Numbers, or RINs, for corn-based ethanol in the
U.S. rose to a record 51 cents, according to Blue Ocean
Brokerage LLC in New York.

Grain Terminal Cites Sabotage, Declares Lockout
2013-02-27 19:40:18.596 GMT

     Portland, Ore. (AP) -- A Pacific Northwest grain terminal
owner imposed a lockout on longshoremen Wednesday after saying
an "independent former FBI investigator" determined a union
leader sabotaged company equipment at the height of contentious
labor problems in December.
     United Grain Corp., part of the Japanese conglomerate
Mitsui & Co., said nonunion replacement workers will operate its
Vancouver, Wash., export terminal for "indefinite" period. The
company said it fired the union leader, whom it described as a
member of the bargaining team of Local 4 of the International
Longshore and Warehouse Union but did not name.
     "Deliberate attempts by an ILWU leader to damage equipment,
disrupt operations and put co-workers at risk cannot be
tolerated," United Grain CEO Gary Schuld said Wednesday.
     The union called the company's allegations unfounded, and
locked-out longshoremen immediately picketed outside the
     "United Grain and its Japanese owners at Mitsui have failed
to negotiate in good faith with the men and women of the ILWU
for months, and instead chose to aggressively prepare for a
lockout, spending enormous resources on an out-of-state security
firm," ILWU spokeswoman Jennifer Sargent said in a statement.
"Mitsui-United Grain has fabricated a story as an excuse to do
what they've wanted to do all along, which is to lock workers
out instead of reach a fair agreement with them."
     Late last year, the company was among Northwest terminal
owners who declared an impasse on labor negotiations and imposed
a contract that included new, management-friendly workplace
     Columbia Grain said the sabotage occurred Dec. 22, days
before the impasse was declared. In one case, someone shoved a 2
-foot-long metal pipe into a conveyor, causing it to shut down,
the company said. In another, a vandal damaged a gear box with a
mixture of sand and water.
     The company, in a letter sent to the union, said an
"impartial and independent" former FBI investigator determined
the union leader was the culprit following an investigation that
included interviews, surveillance tapes and other evidence.
     No charges have been filed, but Schuld said the
investigator's report will be turned over to law enforcement
     More than a quarter of all U.S. grain exports move through
nine grain terminals on the Willamette River and Puget Sound.
The contract dispute initially involved six of those terminals
that operate under a single collective bargaining agreement with
the ILWU: United Grain, based in Vancouver; Columbia Grain,
based in Portland; Louis Dreyfus Commodities, which has grain
elevators in Portland and Seattle; and Temco, which has
elevators in Portland and Tacoma, Wash.
     United Grain has the largest storage capacity of any West
Coast grain export facility with more than 7 million bushels of
storage, according to the company's website.
     The U.S.-owned Temco broke away from the alliance in early
December and negotiated separately with the union. They
announced a five-year agreement Wednesday.
     "It's no coincidence that Mitsui-United Grain has chosen to
throw out unfounded charges by an unnamed 'investigator' just
days after the union membership ratified an agreement with
Mistui-United Grain's American competitors," Sargent said.
     The pro-management terms implemented in December eliminate
some employee perks and grievance procedures while giving
employers more discretion in hiring and staffing decisions.
Management, for example, can expand shifts to 12 hours, if
needed, and use elevator employees to help load ships.

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

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