Wednesday, February 13, 2013

Overnight Highlights from CHS Heding's Tregg Cronin 2-13-2013

Outside Markets: Dollar Index down 0.243 at 79.867; NYMEX-WTI up $0.34 at $97.85; Brent Crude up $0.11 at $118.77; Heating Oil up $0.0008 at $3.2370; Livestock markets are all weaker; Softs are mixed; Gold down $2.70 at $1646.70; Copper up $0.0120 at $3.7560; Silver up $0.006 at $31.025; S&P’s are up 3.00 at 1519.25, Dow futures are up 17.00 at 13,990.00 and Treasuries are weaker.  Euro is up 0.34%, BP -0.54%, AUD +0.29%.

The obvious financial news of note is the President’s State of the Union speech last night, although equities don’t seem to be giving it a second glance this morning.  More importantly seems to be comments from outgoing Bank of England President Mervyn King who responded to the recent “currency wars” talk by saying countries need to allow currency rates to move, and he said they will support their recovery even if it means incurring more inflation.  This was taken to mean a weak British Pound and it is losing dearly to its major counterparts this morning by 1.0-1.8%.  The British Pound/Swedish Krona is at the lowest level since 1992 and the British Pound/New Zeeland Dollar is at the lowest level on record.  At 1.5562, the GBPUSD is at the lowest level since August 3rd.  Otherwise the NIKKEI fell 1.04% last night, the Argentine 5-yr CDS is up 216bp to 2,472.99bp and John Deere beat earnings estimates by returning $1.65/share vs. estimates for $1.40 in Q4.  MBA Mortgage Applications fell 6.4% w/w, and business inventories are due at 9:00am (+0.2%).

After the southern plains system finished up yesterday, there hasn’t been much for precip in the last 12 hours.  There is a rain/snow mix moving across KY/S-IL/S-IN this morning which should continue to support MS-River levels.  STL River gauge looks like it will be in good shape through February.  Dry in the Midwest the next 5-days, but 7-days out sees another major system moving in over the MS-River Valley and on up the OH-River valley.  Totals 100-miles either side of the river should be in the 0.50-1.30” range.  NOAA’s extended maps confirm with above normal precip for the ECB.  Temps should remain below normal during the 6-15.  Some light rains fell in Cordoba, Argentina yesterday in the 0.10-0.60”  range.  Otherwise quiet with all eyes on the system Sat/Sun which is supposed to bring 0.50-1.50” to 85% of growing areas.  S-Brazil is expected to see 0.40-1.00”.  “The rains may not totally end dryness concerns, but if realized, should go a long way towards easing current conditions.” –John Dee.

Lower for most of the night with corn working on its ninth straight lower close which would be the longest such streak without a higher close since September of 2008.  One day in that stretch of 2008 was unchanged.  The meltdown in the Ag space has caught many off guard and searching for answers.  The catalyst seems clear: the pipeline was empty so futures “went to where the offers were.”  Farmers turned palmed out sellers with corn at $7.40-7.50 (futes) and beans at $14.75-14.98.  At the same time, weather began to moderate in South America with better chances of rain the driest areas of their growing regions.  In addition, speculative length bought heavily during a month which is seasonally weak and laden with bearish inputs (USDA baseline numbers, Outlook Conference).  Add on top of the aforementioned the constant barrage about closing ethanol plants, weak exports and better precip in the southern plains and we had ample reason to take price down.  At some point, demand should be uncovered given the lack of farm gate movement.

Japan was in last night tendering for 320,000MT of feed wheat and barley, but canceled the tender due to a lack of “buyers and sellers.”  This is the third consecutive tender to be canceled with the tender rescheduled for February 20th.  After buying 50,000MT at $380/MT the night before last, Jordan is back in tendering for 100,000MT due to prices dropping further.  The 50,000MT was probably Canadian.  Russian analyst IKAR said the recent swoon in domestic wheat prices is temporary, and prices should start rising again in March of April on low inventories.  Currently at $388/MT.  The United Kingdom said they may be a net importer of wheat in 2013/14 for the second year in a row after wet weather prevented fall seeding.  India’s state owned PEC is looking to sell another 245,000MT of wheat from government stockpiles this week.  Palm Oil reserves at the end of January fell 1.9% to 2.58MMT in Malaysia which was above the median estimate of 2.53MMT, causing prices to retreat sharply on their first day of trading since Friday.

Open interest changes yesterday weren’t heartwarming: corn up 11,340 contracts, wheat up 9,440, soybeans down 2,760, meal up 240 and soy oil up 5,340 contracts.  Fresh speculative shorts are being added in corn and wheat which is not positive.  Chinese markets remain closed, but Malaysian Palm Oil fell 55 ringgit to 2,505 (2.15%) on bearish stocks data.  Paris Milling Wheat is down 1.45%, Rapeseed down 0.60%, UK Feed wheat down 0.78%, Corn down 1.78% and Canola is down 0.29%.  Worth mentioning, on the selloff, wheat basis does continue to appreciate.  At the Gulf, HRW is valued at +125/135H which is the highest since 2008.  SRW is seen at +80/85H.  Still, this seems like a lack of supply being offered as opposed to robust demand.  Calendar spreads are holding together overnight.  The Northern Plains farmer also needs to consider the possibility the southern plains might not have a drought this year.  Without that, there is a lot of wheat left in bins north of I-80 which is at risk.

Call things weaker again this morning as speculative selling is far outweighing any desire by end users to step in and price.  Cash is perking up in a lot of areas, and spreads could be called steady/better in corn and SRW, but not so for beans and HRS.  Ethanol production this morning should be a bit better with several plants rumored to be coming back on-line thanks to improving margins.  In fact, most domestic end users of corn have seen margins improve w/w.  

Trade as of 6:50
Corn down 5-9
Soy down 9-11
Wheat down 5-9   

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

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