Monday, March 18, 2013

Overnight Highlights from CHS Hedging Tregg Cronin 3-18-2013

Outside Markets: Dollar Index up 0.409 at 82.665; NYMEX-WTI down $0.89 at $92.57; Brent Crude down $1.32 at $108.51; Heating Oil down $0.0280 at $2.9110; Softs all weaker; Gold up $9.70 at $1602.30; Copper down $0.0775 at $3.4430; Silver down $0.066 at $28.785; S&P’s are down 12.50 at 1541.00, Dow futures are down 72.00 at 14,361.00 and Treasuries are well bid.

The most important financial market news today, and arguably any market news today, is the unprecedented bank levy on Cyprus citizens as part of the agreement from the Eurozone to receive a bailout.  In essence, every citizen in the country of Cyprus who has money in a bank account will be charged a tax for having that money in a bank account which will in turn go towards paying off creditors and securing a bailout from the Eurozone.  This has caused markets across the globe to go into a tailspin, especially those of Spain and Italy as they could possibly be next.  It will almost certainly have the effect of a mini-bank run in which people run to ATM’s and banks across the country to try and pull money out ahead of the proposed levy.  The IBEX-35 is down 2.20%, the FTSE -2.00%, the NIKKEI closed off 2.71% and the Shanghai Composite was down 1.68%.  Portuguese, Spanish and Italian 10-yr yields were up 8-17bp, and the Cyprus 5-yr Credit Default Swap is up 44.28bp to 733.46bp, although well below the 2012 highs of 1,600bp.  The Euro is under heavy pressure as well with the EURJPY -1.227%, the EURUSD -0.948% and the EURGBP is off -0.988%.  Commodities are also getting hammered this morning with Copper -2.51%, Cotton -2.01%, Palm -1.16%, Gasoline -1.72% and Sugar off 1.75%.  Negative headwinds for grains.

Fair amount of moisture around over the weekend with rains in MO/S-IL/S-IN/S-OH, while snow is working its way across the upper-Midwest this morning.  Several major highways and interstates are closed across MN/ND this morning, so expect little grain movement by the farmer or the railroad, fouling up already poor train logistics.  After the current system moves through, things will quiet down in the corn belt with most dry weather impacting us the next 5-days.  Eastern areas of the southern plains have chances at another 0.50-1.40” in E-SKS/E-OK/MO/AR.  NOAA’s extended maps turn cooler and drier for much of the Midwest in the 6-10.  Below normal precip for all of the southern plains.  8-14 has a bit better precip for northern growing areas.

Sell pressure from the very get-go last night and accelerating as we progressed through the evening.  Hard to separate what is specific to the grain markets and what is tied to the pan-commodity and financial market selloff tied to the European contagion fears.  While Cyprus going bankrupt won’t necessarily affect ethanol and soybean crush margins in the US, it will continue to rally the Dollar Index as investors search for a safe-haven, and with our currency already at 7-month highs, it will have a negative effect on our Ag’s.  Aside from that, charts look ugly this morning, and soybeans look as though we’ll be testing the $14.00 mark this week, especially with little news until the March 28th reports.  Crush is still at an unsustainable pace, wheat is still being fed and ethanol plants are starting back up.

News overnight included Valero announcing it was planning to restart output at its Bloomingburg, OH ethanol plant.  It also has plans to resume operations at its mill in Linden, IN “in the next couple weeks.”  Bloomberg reported investors increased bullish wagers on commodities by the most in eight months with net long positions up 30% to 528,680 contracts across 18 futures and options markets last week.  That could change this week.  Jordan issued two tenders for 100,000MT of milling wheat and 100,000MT of barley.  Palm oil remains in the headlines as stockpiles remain near record levels in Malaysia and China and the recently added 4.5% tax on palm oil exports remains in effect, curbing some demand.  While old news now, the NOPA crush report from Friday is mainly garnering negative headlines like “crush missing estimates.”  While the crush did come in nearly 5mbu under estimates, the pace is still unsustainable.  To hit the USDA’s 1,615mbu marketing year target, we need to slow Mar-Aug crush 19% from last year.  The biggest reduction ever in y/y Mar-Aug crush? 12%.  So we’re going to try and do something we’ve never been able to do, which will mean more imports of beans and meal from SAM, bigger inverses, and stronger cash markets.

Open interest changes Friday included wheat down 2,350 contracts, corn up 6,460, beans down 5,140, meal down 3,710 and soyoil up 3,780 contracts.  Chinese markets were down sharply with beans off 13.50c, meal off $12.40, soyoil down 23c, corn up 0.75c, palm down 19c, and wheat down 2.50c.  Malaysian Palm Oil was down 34 ringgit at 2,383 (1.16%).  Paris Milling Wheat is down 0.11%, Rapeseed off 0.38%, Corn off 0.55%, UK Feed wheat down 0.71% and Canola is down 0.59%.

Call things weaker today as a pure “risk-off” day takes hold, regardless of the underlying fundamentals in the grain markets.  More moisture is falling in the Midwest which is bearish until it impacts planting progress which isn’t occurring yet.  Charts, as I mentioned earlier, also don’t have a good look to them today.  Bullspreads should still work near-term as the break isn’t likely to move any grain on top of the winter weather in the upper-plains.

Trade as of 7:10
Corn down 3-5
Soy down 9-16
Wheat down 3-7

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

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