Tuesday, February 5, 2013

Overnight Highlights from CHS Hedging's Tregg Cronin 2-5-2013

Outside Markets: Dollar Index up 0.040 at 79.594; NYMEX-WTI up $0.67 at $96.85; Brent Crude up $0.98 at $116.58; Heating Oil up $0.0320 at $3.1860; Livestock markets are mixed with cattle better, hogs weaker; Softs are trading better save for cotton; Gold down $.30 at $1676.00; Copper is up $0.0030 at $3.7715; S&P’s are up 7.00 at 1500.50, Dow futures are up 65.00 at 13,910.00 and Treasuries are weaker.

Equity markets are recovering a bit this morning led by Europe which has the IBEX-35 up 1.67%, FTSE MIB +1.15% and the CAC 40 +1.08%.  Asia took theirs on the chin overnight after the drubbing we saw yesterday afternoon as the NIKKEI fell 1.90%.  Surprisingly, China’s Shanghai Composite closed up 0.20%.  Part of the risk-on mentality this morning is due to the Yen reverting back to its losing ways.  The USDJPY is up 0.877% this morning, while the EURUSD is +1.260%.  The Yen carry trade (borrowing in Japan where interest rates are low, and investing the monies in a high interest rate country like Brazil) seems to be back on.  Computer maker Dell is set to have its board meet on the subject of a leveraged buyout worth a reported $24 billion.  Several Ag/food companies releasing earnings today including Kellogg at 7:00am.  Archer Daniels Midland released this morning showing earnings of 77c/share, up from 12c/share a year ago.  The gain was due in large part to better margins in their soy crushing unit.  ISM Non-Manufacturing Survey at 9:00 (55.0 est).

More snow in the upper-Midwest and Great Lakes Region overnight with more falling this morning.  5-day forecasted precip map shows a sizable system moving into the southern plains and Gulf Coast late in the period with parts of TX/E-OK/E-KS seeing as much as 0.80-1.00”.  Some precip is expected in NE, but nothing over 0.40”.  NOAA’s extended maps still calling for above normal precip for almost everything East of the Rockies.  Epicenter of the moisture will be the Mid-South, but the WCB should see moisture.  Temps will be split down the middle of the country with above normal east of the plains and below normal west of the plains.  Dry weather in South America yesterday with temps in the 80’s and 90’s.  Forecast is dry through the weekend in Argentina.  The first half of next week sees some rains in N-Argentina and S-Brazil to the tune of 0.35-0.85” with 75-85% coverage.  6-10 day maps are backing that up this morning.  The trouble is the tendency for moisture in the extended maps not to roll forward and actually fall.  Stay tuned. 

Rather quiet trade overnight with two-sided markets in corn and wheat inside narrow ranges, while the soy complex attempts to retain its hard-fought-for risk premium.  South American weather hasn’t offered anything new this morning, so no real reason to crash the soy complex, and grain markets are slowly drifting.  Demand remains slow on corn and wheat, although cash markets are holding surprisingly well considering the movement witnessed last week.  The events in front of the market include the weekly data sets, Friday’s WASDE report, the February USDA Outlook Conference and the insurance pricing period.  Range bound trade may develop until we clear our plates of some of the aforementioned, but in general, funds still seem to have an affinity for risk as evidenced by rising O/I.

Tender business overnight included Japan seeking 126,184MT of milling wheat from the US, Canada and Australia for Mar-May delivery.  Only 35% of the wheat is expected to be sourced from the US with Canada being asked to provide 52,000MT of Western Red Spring.  A story from Dow Jones overnight suggested India’s actual wheat shipments have only been about 1/3 of the level actually auctioned off from government reserves.  No one else has reported this, so some additional confirmation will be needed, but India is 2-months away from harvesting another 91MMT+ of wheat.  Reports from that country conclude crops are in good shape and are receiving plenty of finishing rains.  A chart from Bloomberg included below suggests Chinese wheat imports will continue after flour prices rose to a record price in December.  Wheat prices in China are $2.82/bu above US export values, almost triple what they were 3-months ago.  There has been chatter about China snooping for Apr/May SRW cargoes out of the Gulf.  Chinese crush plants will begin closing this week in anticipation of the week-long Chinese New Year celebrations occurring next week.  Wheat/Corn spreads hit fresh contract lows yesterday, and reports from other offices say HRW is working back into feed lot rations.  Stress testing short wheat/long corn positions might be prudent in coming sessions.  A report from Russia said more than 9% of Russian winter crops in bad condition.  Discussions continue about the removal of the 5% import levy, but again this shouldn’t materially change wheat export/import grids.

Open interest changes yesterday included corn up 5,280 contracts, wheat up 3,780 contracts, soybeans up 3,300, meal up 4,560 and soy oil down 160.  Chinese markets were mostly weaker overnight including soybeans down 3.5c, meal up $0.10, soyoil down 35c, corn down 3.5c, palm down 36c and wheat down 4.75c.  Malaysian Palm Oil down 18 ringgit at 2,548 (-0.70%).  Paris Milling Wheat is down 0.30%, Rape up 0.05%,  Corn down 0.21%, UK feed wheat down 0.70% and Canola is up 0.43%.  Calendar spreads are unchanged to better overnight.  A couple quick notes: Dr. Cordonnier cut his Argentine soybean production estimate to 51MMT, down 1.0MMT and vs. the USDA at 54MMT.  He also cut Paraguay 0.25MMT to 8.75MMT.  Still looking at a 29MMT increase y/y for all of SAM.  To-arrive spring wheat basis firmed yesterday by 5-10c on exploders and shuttles yesterday as farmers await $8.50 cash.  ADM-Marshall is now paying +9K for AMJJ.

Look for a quiet, choppy day with two-sided trade likely in all of our Ag markets.  We have no weekly data sets today, outside markets are firm and market breaking news is slow.  Further consolidation is likely in the sessions directly ahead as we await refreshed data tables, more weekly demand numbers and the USDA’s first opinion of our 13/14 balance sheets.  Index fund rolls begin Thursday.

Trade as of 7:00
Corn down 3-4
Soy up 1-3
Wheat down 1-3

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

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