Tuesday, February 12, 2013

Overnight Highlights from CHS Hedging's Tregg Cronin 2-12-2013

Outside Markets: Dollar Index down 0.040 at 80.270; NYMEX-WTI up $0.23 at $97.26; Brent Crude up $0.47 at $118.59; Heating Oil up $0.0063 at $3.2378;  Livestock prices steady/weaker; Softs are all weaker; Gold up $0.80 at $1649.90; Copper up $0.0145 at $3.7375; Silver up $0.005 at $30.915; S&P’s down 0.50 at 1512.50, Dow futures are down 5.00 at 13,919.00 and Treasuries are softer.

Better financial markets around the globe overnight with the NIKKEI rallying 1.94% after being shut since Friday while the Australian ASX closed unchanged.  Europe is mostly firmer this morning, although the British Pound is the notable weak currency this morning with the GBPEUR -0.581% to 1.1613 and looking set for a decline to 1.1473.  The GBPCHF is down 0.605%.  The major currency news came from the G7 Conference early this morning at which leaders said they would not target exchange rates, inciting a global “currency war.”  Also newsworthy were reports North Korea conducted their third nuclear test in defiance of the UN.  Coca-Cola, Goodyear and Buffalo Wild Wings all report Q4 earnings today.  Not much for economic data.  State of the Union Address from Washington DC tonight.

Quiet in the upper-Midwest the last 24 hours, but a large system is working across the southern plains this morning bringing rain/snow mix to TX/OK/S-KS.  The panhandle and high plains areas should receive up to 0.80”, although KS isn’t expected to see much.  Best precip there in 30-days, however.  The rest of the Midwest will be dry the next 5-days.  NOAA’s extended maps show much below normal temps for WY/SD/MT/ND while below normal temps will encompass the rest of the US.  Normal to slightly above normal precip is seen.  8-14 looks nearly identical.  Mostly quiet in SAM the last 24 hours.  Forecast sees rains possible in Argy to the tune of 0.20-0.60” today/tomorrow.  S-Brazil should see on and off showers for much of the next week.  0.50-1.50” likely.  Argy’s next chance at rainfall is the end of next weekend with totals of 0.50-1.50” on 85% coverage.  Most forecasters are hanging their extended models on this rain system.  If it confirms and falls, patterns have changed.  If it doesn’t, most will continue to look for disappointment there.

Weaker on corn all night, and dragging wheat lower with it as corn heads for its eighth straight losing session, the longest streak since March of 2010.  We broke the psychologically important $7.00 mark overnight after having held it yesterday, but that shouldn’t be too big of deal considering there isn’t much support until $6.78.  Still, the fact farmers moved a fair amount of corn when price hit $7.35-7.45 at a time in which our exports remain poor, 15-20% of our ethanol capacity remains idled and South American production forecasts were being raised is definitely resonating with the trade.  Soybeans are bouncing a bit today, but it seems mostly technical.  NOPA crush data will be out Friday, and that should show demand for soybeans remains strong.  Yet it’s important to remember front-month soybean prices were at $12.50 a year ago when South America had much smaller crops.  Logistics will remain a problem, but soybean bulls may have to focus on the US domestic market moving forward.

In tender business, Japan is looking for 96,538MT of milling wheat from the US and Canada with 64% of the wheat set to come from the US.  S-Korean flour millers bought 46,800MT of US wheat last week for May shipment.  No prices listed.  ABARES released an updated Australian wheat production estimate overnight of 22.1MMT, up slightly from 22.0MMT last month.  Exports are seen at 20.9MMT.  These estimates compare with the USDA at 22.0MMT and 19.0MMT, respectively.  The French government raised their SRW seeding estimate 3.1% from a year earlier to 12.3 million acres.  Brazil ethanol futures are trading above raw sugar prices for the first time in almost 2-yrs, prompting some to lean positive towards sugar demand in biofuels.  World Cotton crops are forecast to slump 11% this year, the biggest y/y change since 1993, to 23.2MMT thanks to smaller harvests in the US & India and Chinese buying.  Story below.  Several made the comment the price projections from yesterday’s USDA baseline numbers, combined with lower forecasts from Goldman, are probably weighing on fund sentiment.  The USDA looks for corn price to average $4.30-5.40 over the next decade.  They see wheat price at $5.95-7.20, and bean prices at $10.35-11.35 the next 10-yrs.  These prices assume no weather events and normal yields.

Open interest changes yesterday included corn up 8,690 contracts, wheat up 7,700 contracts, beans down 330, meal down 5,190 and soy oil up 2,120 contracts.  Likely some fresh speculative shorts being added in grains considering the lower closes and the lack of farm gate selling.  Malaysian and Chinese markets remain closed.  Paris Wheat is down 0.71%, Rapeseed down 0.11%, Corn down 0.55%, UK Feed wheat down 0.84% and Canola up 0.43%.  Calendar spreads are firmer overnight with the CH/CK up 0.25c to +1.00c.  Hereford and Chicago rail markets were firmer yesterday, but cash traders said it had more to do with freight costs than demand pull.  Corn and Soybean basis on the Illinois River remains well above delivery equivalence, so no deliveries are expected as of yet.

Grains lower and oilseeds better to start, but wouldn’t be surprised to see some bottom picking send grain prices higher after 8 straight lower closes.  Bouncing above the $7.00 mark might be a moral victory, but not much more.  These markets have afforded ample opportunity to sell higher prices, and that is true more than ever on new crop.  Quite a bit of time to go before spring planting, but there is better moisture around the last 10-days.  Funds will be sellers on rallies.

Trade as of 6:55
Corn down 4-5
Soy up 2-6
Wheat down 1-3

Cotton Crops Slumping Most Since 1993 as China Buys: Commodities
2013-02-12 11:21:06.612 GMT

     (To get alerts for Commodities columns: SALT CMMKT)

By Luzi Ann Javier and Oliver Renick
     Feb. 12 (Bloomberg) -- Cotton harvests are heading for the
biggest drop in more than two decades as farmers from the U.S.
to India reduce planting and China increases demand for higher-
quality imports.
     Crops will tumble 11 percent, the most since 1993, to 23.2
million metric tons in the year beginning Aug. 1, data from the
International Cotton Advisory Committee show. Farmers will
reduce sowing to 31.58 million hectares (78 million acres), a
7.7 percent decline and the largest in 11 years, according to
Washington-based ICAC, which represents 41 governments. By July
2014, stockpiles will shrink 4.9 percent to 15.9 million tons,
the first reduction in four years, the group’s data show.
     Prices that slumped 62 percent from a record in 2011,
prompting farmers to switch to soybeans and corn, are poised to
rally 15 percent to 95 cents a pound by the end of 2013,
according to the median of 16 estimates from analysts and
traders compiled by Bloomberg. China is buying higher-grade
American and Australian fiber for textile makers at cheaper
prices than domestic supplies and sitting on lower-quality local
stockpiles to subsidize farmers.
     “China will want to import some cotton that the world
doesn’t have to give next season,” said Peter Egli, director at
Chicago-based Plexus Cotton Ltd. “Prices will have to go higher
to satisfy mill demand and China imports,” he said in a
telephone interview.

                         Bullish Wagers

     Cotton advanced 9.8 percent to 82.52 cents this year on ICE
Futures U.S. in New York, the best performer among 24 raw
materials on the Standard & Poor’s GSCI Index. The commodities
gauge climbed 5.1 percent and the MSCI All-Country World Index
of equities rose 4.6 percent. Treasuries lost 0.8 percent, a
Bank of America Corp. index shows.
     Money managers are gearing up for a rally. Bets on price
gains in futures and options outnumbered wagers on declines by
59,138 contracts as of Feb. 5, the most since Oct. 12, 2010,
data from the Commodity Futures Trading Commission show.
     While global cotton output is tumbling, consumption will
increase 3 percent as the world economy recovers, leading to a
shortage for the first time since 2010, according to ICAC.
     Farmers in Spain begin planting the first crops of 2013
this month. The U.S. will follow in March, then China, Egypt and
Central Asia in April, South Asia in June, Australia and
Argentina in September and Brazil in October, according to the
U.S. Department of Agriculture’s crop calendar.

                         Soybeans, Corn

     In the U.S., the world’s largest exporter, planting will
slump 16 percent this year to 10.32 million acres, the least
since 2009, according to the average of 13 analyst estimates
compiled by Bloomberg. Acreage may plunge 27 percent as farmers
shift to more profitable crops, the Memphis, Tennessee-based
National Cotton Council said on Feb. 9.
     A farmer in Arkansas, the third-largest cotton-growing
state in U.S., can earn $385 an acre growing corn this year and
$320 on soybeans, based on an analysis of prices and costs as of
Feb. 8 by the University of Arkansas division of agriculture.
Even after a rally in prices this year, cotton would fetch only
$200 an acre, according to the December study of surface-
irrigation farms, the most common type in the state. The figures
exclude land costs, including rent.
     Cotton production in Texas, the top-growing U.S. state,
will decrease in 2013 as year-long drought conditions that
prevented grain planting begin to lift in some regions, said
Darren Hudson, the director at Texas Tech University’s Cotton
Economics Research Institute.
     “If we don’t have a drought to keep yields down, we’re
going to flood the place with corn,” Hudson said in a phone
interview from Lubbock, Texas. “Producers are looking at corn
and grain sorghum as those prices are attractive.”

                        Australia, India

     Upland cotton planting in the western high plains of Texas,
a dry area, will probably fall to 3.7 million acres from an
estimated 4.2 million acres the year before, according to Steve
Verett, executive vice president at Plains Cotton Growers, a
group in Lubbock representing more than 1,000 producers.
     In Australia, the fourth-largest shipper, sowing will
tumble by 19 percent for next crop, while in India area will
drop 7 percent, the ICAC estimates dated Feb. 5 show. Farmers in
all seven top shippers, including Brazil, Uzbekistan, Greece and
Burkina Faso, will reduce plantings, shrinking the acreage to
the smallest in four years, the data show. These early estimates
for 2013-2014 are revised every month, ICAC said.

                        Imports Expand

     Growth in China, the second-largest economy and the top
cotton user, will accelerate to 8.3 percent in the third quarter
after ending a two-year slump in the last three months of 2012,
estimates from economists compiled by Bloomberg show.
     Chinese imports jumped 75 percent in December from the
previous month to 532,177 tons, a third monthly gain and the
longest run of increases since September 2011, customs data
show. Foreign purchases will reach 3.05 million tons in the year
through July, 12 percent more than the 2.72 million tons
predicted in January, the USDA said Feb. 8.
     Retail sales of garments, footwear and textiles in China
advanced for a fifth straight month in December, the longest
expansion in almost two years, statistics bureau data show.
     “Textile makers, especially those of us who are export-
focused, have little choice but to use machine-picked high-end
imported raw material,” Kong Jia, a manager at Hebei Xindadong
Textiles Printing & Dyeing Co., said by phone from Shijiazhuang
in northeastern China. “The government is trying to offload
part of the huge stockpiles, but textile makers aren’t
enthusiastic about buying that cotton because the quality and
price aren’t attractive.”

                         Growing Stockpiles

     While China’s growth is accelerating, Standard & Poor’s
said Jan. 31 it has the highest risk of a downturn among 32 of
the largest economies and the International Monetary Fund
forecasts a second year of contraction in the euro area. Cotton
use fell 11 percent in 2008-2009 during the global financial
crisis, USDA data show.
     China stockpiled a record 6 million tons for reserves in
the first five months of the 2012-2013 year, which began in
September, or 88 percent of the nation’s output, the official
Xinhua News Agency reported last month. Purchases were 3.12
million tons the previous year, according to the government.
     Inventories are set to climb to about 9 million tons this
season, enough to meet the production shortfall for the next six
years, Joe Nicosia, an executive vice president at Louis Dreyfus
Commodities, the world’s largest cotton trader, said at a
conference in Hong Kong in November.
     Supplies from state reserves were sold at 19,179 yuan a ton
or $1.40 a pound, according to the National Development and
Reform Commission. That’s 70 percent more than prices in New
York of 82.52 cents at 11:11 a.m. in London, data compiled by
Bloomberg show.
     “If I thought there was any quality in those stockpiles
I’d be sweating more,” said Jack Scoville, vice president at
Chicago, Illinois-based Price Futures Group Inc. “But it’s
borderline unusable so that doesn’t concern me.”

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

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