Wednesday, February 27, 2013

Overnight Highlights from CHS Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.246 at 81.624; NYMEX-WTI up $0.07 at $92.71; Brent Crude up $0.19 at $112.90; Heating Oil up $0.0113 at $3.0430; Livestock markets are mixed; Softs are mixed/better; Gold is down $9.00 at $1606.30; Copper down $0.0085 at $3.5580; Silver down $0.220 at $29.040; S&P’s are up 3.50 at 1496.25, Dow futures are up 30.00 at 13,889.00 and Treasuries are firmer.  

After the Italian flush yesterday tied to the hung elections, a sense of normalcy is taking over this morning.  While the NIKKEI was down 1.35% overnight, the Shanghai Composite was up 0.87%, the FTSE MIB is up 0.29%, the IBEX-35 is up 0.53% and the CAC 40 is up 0.62%.  The Euro is also continuing its recovery from yesterday with the EURUSD up 0.46%.  The Aussie and New Zealand Dollars are getting pounded this morning with the EURAUD +0.732% and the EURNZD +0.544%.  Part of the strength this morning was tied to an Italian bond auction this morning which saw 4 billion euros worth of 10-yr bonds sold at 4.83% vs. 4.17% last month.  MBA Mortgage Applications were down 3.6%.  Durable Goods (-4.7%), Capital Goods (+0.2%) and DOE inventories due up today.

The southern plains storm moved east the last 24 hours, bringing heavy moisture to C-IL/IN/OH and the Carolinas.  Totals in IN look better than 1.0” in a large swath of the state.  As our Indy office has stated, they are 100% replenished.  Still snow falling in IA/MO/WI/IL/MI this morning.  The 5 & 7-day forecasted precip maps are dry until some moisture begins toward the 5th and 6th of March in the ECB.  NOAA’s extended maps are putting above normal precip in SD/NE/IA in the 6-10, and that would certainly be welcome.  8-14 puts above normal precip for the entire Midwest and southern plains.  Below normal temps during the 6-15.  Dry weather in SAM yesterday.  The forecast sees another front to bring rains of 0.50-1.50” to 85-90% of Argentine growing regions by Friday and over the weekend.  S-Brazil sees 0.50-1.00” for Sunday.  Temps remain non-threatening.  Soybean quality is said to be improving in the north as the rains subside while harvest advances.

Mostly better trade overnight as futures try to continue the moves seen late in the session yesterday.  Overnight news flow would suggest demand is improving at this lower price echelon, thanks in part to the tightening wheat/corn spreads, spurring feedlot demand for the milling component.  In addition, it doesn’t seem as though any progress has been made in easing Brazilian logistical woes, raising the possibility of more Mar/Apr soybean business.  Still, news from China would suggest they are more interested in releasing state reserves of oilseeds (2.0-2.5MMT of soybeans from ‘09 & ‘10) to bridge the gap to Brazilian supplies, than reach for a ton of nearby stem.  Cash meal markets in the US were very weak yesterday as the board crush slips to the lowest levels since October at 50c/bu.

Bulls continue to discount the Paraguayan soybeans trading into the US.  Analysts note they have bought paper as a hedge against US beans, but no basis or freight has been established, leaving open the possibility of it not being executed.  In tender news, South Korea’s KFS bought 60,000MT of optional origin feed wheat at $312.84/MT C&F for June 30 which looks like Indian.  India continues to auction wheat from state reserves.  Japan bought 18,340MT of feed wheat and 51,660MT of feed barley, their first feed purchase in five weeks, a strong signal we have found a bottom.  Japan will be tendering for 320,000MT of feed wheat and barley on March 6 for shipment by July 30.  Egypt said it has 3MMT of domestic and imported wheat in stockpiles, enough to meet consumption for 123 days.  SovEcon said Russian grain stockpiles may fall to 600-700TMT by July 1 which would be a record low.  Winter crop losses are seen at 12%, but production should still rebound.  Grain Union officials there said prices should remain high in 13/14 on tight supplies.

Also a fair amount of Chinese news on the wire overnight including the Ministry of Ag saying several provinces received below normal rainfall, and others were hit by freeze, damaging the rapeseed crop.  Research firm Yigu Information Consulting said feed mills in China will probably order more US grain on concern the domestic supply won’t meet demand as well as a higher vulnerability to mold due to recent moisture in Northern China.  They said China’s corn shortfall may reach 5MMT this year from 2MMT last year.  Traders noted US Corn delivered China at $356/MT C&F in Sept. vs. Dalian futures for September delivery at $390.50/MT.  COFCO, China’s largest state grain trader, is slated for $4.8 billion to boost processing and shipping capabilities this year.  China’s inventory of soybeans may fall to 4MMT by the end of March from 5.2MMT as of last week according to  Arrival shipments may be 7MMT in Feb-Mar, lower than the 8.66MMT a year ago.

Open interest changes yesterday included wheat down 6,940 contracts, corn down 5,310, soybeans down 10,380 contracts, meal down 4,780 and soy oil down 1,960.  Partially some long liquidation in the soy complex as well as traders exiting positions ahead of FND Friday.  Chinese markets were weak with beans down 20c, meal down $1.90, soy oil down 48c, corn unchanged, palm down 38c and wheat down 5.75c.  Malaysian Palm Oil was down 9 ringgit at 2,410.  Paris Milling Wheat is up 1.24%, Rapeseed is up 0.21%, UK Feed wheat is up 0.37%, Corn is up 1.11% and Canola is down 0.40%.

Worth noting, wheat traded below corn yesterday for the first time since May.  Lots of anecdotal reports of feedlots in KS and CO reaching for HRW instead of corn.  In addition, corn basis remains very firm with +145N PNW being shown  for June/July delivery vs. some of the strongest trades of the year last year around +160N.  Group-3 rail also remains very firm with +30’s being posted commonly.  Lastly, remember funds in Chicago wheat are short more wheat than the commercials are, the only time in history this has happened, just as US-SRW starts hitting global feed channels, milling channels and US feed lots. 

Call things better today with an eye towards ethanol production and stocks at 9:30am.  It feels as though the news flow is turning much more positive down at these levels, and according to basis and spreads, so is demand at least for grains.  Would be stress-testing any short wheat/long corn positions one has on given wheat’s competitive position relative to corn.   Also, it feels as though we’ve discounted the winter storms for now, or at least until more moisture comes.  The market needs the US farmer’s corn.

Trade as of 6:55
Corn up 1-2
Soy up 6-8
Wheat up 2-6

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

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