Thursday, March 14, 2013

Afternoon Recap from CHS Hedging's Tregg Cronin


Outside Markets as of 1:30: Dollar Index down 0.366 at 82.520; NYMEX-WTI up $0.61 at $93.10; Brent Crude up $0.88 at $109.40; Heating Oil up $0.0019 at $2.9267; Livestock markets are mixed with hogs up and cattle down; Softs mixed but Cotton strong, up 2.65%; Gold up $1.80 at $1590.50; Copper up $0.0100 at $3.5360; S&P’s are up 4.25 at 1554.25, Dow futures are up 44.00 at 14,442.00 and Treasuries are lightly mixed.

10th day in a row of higher highs in the Dow Jones Industrial Average which is the longest winning streak since 1996.  European shares also finished strong with the FTSE up 2.45% and the IBEX up 1.88%.  The Dollar Index has put on a sizable reversal to the downside today after reaching new highs for the move.  This had been a negative influence to commodities on what has been an impressive rally in the Dollar.  The EURUSD is back over 1.3000 this afternoon.


Wheat rallied for the 6th day in a row today, the longest streak since July thanks in large part to robust export sales, strong feed demand and what appears to be the beginning of a short-covering rally.  Late in the session, midday maps and models suggested we could have a frost threat in HRW country for around 3 nights March 21-25.  A little far out, but it only adds to the bullish sentiment.  A late push drove wheat to its highs, although the $7.27 corrective high in May Chicago wheat remained elusive today.  Trade above that level would likely cause further short-covering.  For the first time in quite a while, all the stars seem to be lining up for wheat, but it only took a $2.00 selloff in order to pull it off.

Export sales on wheat today came in at a strong 32.6mbu, up from 22.8mbu last week and above the 12.2mbu needed weekly to hit the USDA’s export projection.  Shipments were also very strong at 28.9mbu, above the level needed.  Shipments will be the key moving forward.  Export sales commitments are now down only 2% below last year while the USDA is calling for a 2.3% decline, so about as close as it gets.  HRW led sales for the first time in a long time at 14.7mbu, a little over double the level needed.  Aside from durum, every class of wheat hit the level needed.  Sales of corn came in at 11.1mbu vs. -1.9mbu last week and the 12.6mbu needed weekly so very close to the level needed.  Soybean sales were also a supportive surprise at 24.2mbu vs. 8.8mbu last week and the 4.6mbu needed weekly.  This is likely the last strong sales week we’ll see unless China comes scrambling back for more boats, although this doesn’t seem likely.  Stories circulating yesterday suggested China has close to 5MMT worth of beans at their ports to unload.  Still, it also isn’t very probable China takes to canceling US beans anytime soon given the logistical problems in Brazil.  More rumors today suggest the “cancelations” of Brazilian beans were actually just rolling sales down to Argentina which makes sense.

As noted above and in a previous email, there are frost threats beginning to crop up in the southern plains for the Mar 21-25.  Forecasted temps are thought to fall to 20-25 degrees those evenings.  While snow cover was solid, forecasted temperatures in SW-KS today were 75-80 degrees, so isn’t likely there is much left.  Our KC office said all of the wheat south of I-70 has broken dormancy.  The party is definitely still in Chicago thanks to the robust demand, but some adverse weather could still impact the HRW crop.  The KWN/KWZ spread closed up 1.75c today to -26.50c.  Keep an eye on that one for indications about crop size and condition.  Chicago spreads were very firm today to with the WK/WN up 3.25c to +5.00c.  The strong this one goes, the most short covering it is likely going to induce.  The MWK/MWN firmed 1.25c to +1.50c, but honestly can’t make up my mind about buying or selling it as the basis weakness should weigh on that spread eventually, but everyone remembers the strength witnessed in the MWH/MWK.

Lots of wheat moving today across North Dakota with producers taking advantage of what will be a good basis given the amount of hard wheat left in the producers’ hands.  Several elevators across North Dakota have bought between 500,000 and 1,000,000 bushels of wheat the last couple days, and most have been actively shopping to stay in front of what should be decent basis weakness.  CIF bids on corn and soybeans continue to erode with corn bids now at +72K and bean bids at +77K.  Hereford bids are also soft given the fact feedlots are trying to buy wheat and get a home for their corn length.  This weighed on the CK/CN which closed down 0.25c to +17.75c and probably has more of a setback to +15.00c before it’s through. 

Corn and soybean news was much lighter.  The Buenos Aires Grain Exchange released their weekly update saying soy crop yields are 30% lower than a year ago in N Argentina as the yields are affected by drought.  They left their forecasts unchanged at 48.5MMT on soybeans and 25MMT on corn with 12% of the corn harvested.  They did say the corn harvest was 16% higher than a year ago so far.  They did make note that today’s frost did impact some areas of the soy crop.  In Brazil, logistics remain a mess.  198 vessels waiting to load soybeans while the truck line is said to be 9.3 miles long, up from 8.7 miles a week ago.  We get NOPA crush out in the morning with expectations for 141-143mbu although I’ve seen some analysts at 138mbu.  Anything over 140mbu would be supportive and signal a crush which is still too strong for the USDA’s export forecast.  We are tracking way above 2010/11 right now, and that year we crushed 1,648mbu vs. this year’s 1,615mbu forecast.  Highlights how much we need to slow crush the second half of the year.

Would think Wheat tries to close the week on a strong note given the bullish demand factors and now the new influence of weather.  Corn is tagging along, but weakening basis levels and spreads can only happen for so long until futures begin to notice.  Soybeans have taken a shellacking this week, but will probably take direction from the crush report in the morning.  Otherwise we wait for the reports on the 28th.

6-10 & 8-14 day temperature maps from NOAA below.

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

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