Friday, February 22, 2013

Overnight Highlights from CHS Hedgings Tregg Cronin 2-22-2013

Outside Markets: Dollar Index down 0.080 at 81.381; NYMEX-WTI up $0.33 at $93.17; Brent Crude up $0.96 at $114.49; Heating Oil up $0.0182 at $3.1139; Livestock markets are lightly mixed; Softs are all firmer; Gold up $0.60 at $1579.20; Copper up $0.0015 at $3.5545; Silver up $0.051 at $28.75; S&P’s are up 7.75 at 1508.75, Dow futures are up 66.00 at 13,938.00 and Treasuries are mixed.

Not much for economic and financial news overnight with most equity indices higher.  European indices are mostly over 1.0%, and Asia had a mixed close.  The European Commission released their updated growth forecast for the Eurozone in 2013, seeing a -0.3% contraction, weaker than expected.  Little for economic data in the US today, with few notable companies reporting earnings.  Italians go to the elections polls Sunday and Monday.  Gird your loins for the sequestration fight next week ahead of the March 1 deadline.  Only notable currency moves are a sharp rally in the Aussie Dollar and Kiwi, after the RBA’s governor said he’s not interested in intervening in currency markets at this time.

More snow in the Midwest overnight with the water equivalent moisture table for the last three days below.  Additional snowfall is falling in IA/SD/MN/WI/MI this morning with 2-5” expected in those states today.  Hutchinson, KS received 14” of snow.  While not wishing to incite a fight over drought, will simply say this is a definitely a step in the right direction.  Forecasted precip maps show additional moisture hitting the central and eastern corn belt by next Monday and continuing through Wednesday.  Totals look like 0.40-1.12” of water equivalent.  Extended maps turn notably drier in the 6-10 for almost all of the Midwest and southern plains.  Temps will generally be normal/below with the cold focused in the southeast.  8-14 is similar.  Some light rains in Argentina overnight but should be dry until tomorrow night.  Forecast calls for 0.50-1.00” on nearly 100% of their growing areas.  More rain later next week.  Brazil still in good shape, although probably a little wetter than preferred in the north.

Sharply better overnight led by the soy complex as front month March was finally able to push through $15.00, something it hasn’t been able to do since October in any meaningful fashion.  News of additional soybean business, and continued bottlenecks in South America are behind the buying, and it is likely we see additional sales to China either today or early next week.  As much as 7MMT of beans are waiting to be loaded in Brazil, and the port strike today and Tuesday won’t aid logistics.  The strike is said to include containers only, not bulk grain, but will likely affect all loadings.  There is also a stranded ship at an Argentine port.  The pickup in sales won’t show up on this morning’s weekly export sales report, so don’t be surprised at a low number today.  Fortunately, prices in China are confirming the SAM problems with beans and meal rallying sharply there overnight as demand pull becomes more serious.  Chinese analyst JC Intelligence Co said China may have bought 400-500,000MT of soybeans from the US this week alone.

In addition to the soybean business, Bloomberg reported this morning China’s feed mills bought at least 120,000MT of corn from the US for Sept/Oct delivery at $290-300/MT.  This would be the first purchases of corn by China from the US in quite some time.  Their market is in a huge carry while ours is in a large inverse.  Aside from the grain buying, comments from the Ag Minister of China were also supportive.  “China has a structural shortage” of its grain supply because demand continues to rise.  “Chines faces a very difficult task balancing its grain demand and supply.”  Japan was in for some wheat last night, buying 37,773MT of food wheat, 24,026MT of food barley and 5,000MT of malting barley.  The food wheat came from Australia and Canada.  The USDA is on the tape this morning with their full Outlook Conference balance sheets, but I’ll just send out an update later.  Markets aren’t paying attention to them anyway, and justifiably so.  Canada has left its 13/14 wheat production estimate unchanged at 28.5MMT, up 4.8% from a year ago.

Open interest changes during yesterday’s session included wheat down 6,960 contracts, corn down 4,030, beans down 5,850, meal up 100 and soyoil down 1,290.  March option expiration today, and it looks like we’ll put some squeeze on the $15.00 calls and puts.  I still won’t rule out a tangle with the $7.00 strike in corn at some point.  Chinese markets were sharply better last night with soybeans up 30.50c, meal up $12.70, soyoil up 34c, corn up 4c, palm up 20c and wheat up 0.75c.  Malaysian Palm Oil was down 2 ringgit at 2,534.  Paris Milling Wheat is up 0.10%, Rapeseed up 0.53%, Corn up 0.56%, Canola up 0.44% and UK Feed wheat up 0.15%.

Soybean basis firmed off the PNW and in the Gulf last night, but remains very thin.  Posted numbers on shuttles for spot trains are +165H or better, while CIF bids are back above +80H for beans.  Corn basis also continues to firm at both export terminals as well as domestic locations such as ethanol and feedlots.  Any wheat basis strength is about poor logistics and the CP being 2 weeks late on want dates.  Cars simply aren’t moving.

Call things firmer today as beans continue to do export business we really can’t afford to do.  Corn and wheat should trade higher in sympathy, but need to see the kind of export demand beans are seeing to really get excited.  Corn needs a rally to fill the domestic pipeline, but traders are focused on weather right now.  Until futures pop, farmers aren’t going to be willing sellers of corn.  Wheat might not have a choice.  Export sales at 7:30.

Trade as of  7:10
Corn lightly mixed
Beans up 15-17
Wheat up 1-2

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

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