Tuesday, March 12, 2013

Overnight Highlights from CHS Hedging's Tregg Cronin 3-12-2013

Outside Markets: Dollar Index up 0.131 at 82.704; NYMEX-WTI up $0.04 at $92.10; Brent Crude down $0.32 at $109.92; Heating Oil down $0.0052 at $2.9637; Livestock markets are mixed/weaker; Softs are weak; Gold up $16.90 at $1594.90; Copper up $0.0135 at $3.5305; Silver up $0.407 at $29.260; S&P’s are down 2.00 at 1548.50, Dow futures are down 22.00 at 14,359.00 and Treasuries are firmer.

Fairly subdued equity trade around the globe overnight with Europe flat, although Asia was weaker with the Shanghai Composite down 1.04%.  The Volatility Index, or VIX, dropped to 11.56% yesterday, the lowest close since December of 2006.  This speaks to the sense of complacency in both DC and New York.  As we push to higher and higher highs, keeping track of the VIX could be timely.  Spain’s 10-yr yield dropped to 4.7037% overnight, the lowest level since November 16th, 2010.  Successful treasury auctions and a relative calm out of Italy are contributing.  The Roman Catholic Cardinals will set about electing a new pope today.  I’ll pass around later today, but the Dow Jones-UBS Commodity Index has posted very poor performance YTD.  Not much of anything on the economic calendar today.

Not much for precip in the Midwest the last 24 hours.  Radar quiet aside from a few flurries.  5-day forecasted precip map puts moisture in for MO/S-IL/S-IN to the tune of 0.25-0.8”, but fairly quiet elsewhere.  Northern ND could see another 0.40”.  Extended maps from NOAA remain favorable.  Above normal precip for the entire Midwest during the 6-10, while temps will be below normal for the WCB.  More of the same in the 8-14, although more normal precip for the southern plains.

Mostly weaker trade overnight across the major grain and oilseed markets in a bit of a correction from yesterday’s decent rallies.  Two things to note about yesterday: 1) a fair amount of farmer selling took place in corn, and to a lesser extent wheat, yesterday on the rally.  2) There has been almost no volume on the most recent rally in any of the major markets: wheat, corn, soybeans, meal and soyoil.  The latter point is particularly concerning considering soybeans are tangling with an area of major resistance at the $14.85-15.00 range which has blunted rallies in October, December and February.  In addition, cash markets continue to strengthen on corn, making the need to push to new futures highs less of a necessity.  My views on wheat have been well discussed.

In export news overnight, Japan bought 130,533MT of milling wheat from the US, Canada and Australia.  60,000MT of the total came from the US.  Articles overnight said Brazilian farmers have harvested around 48% of the crop as of March 8th compare with 46% last year according to Safras.  News of the progressing harvest along with the lightest soybean export inspections in several months are definitely weighing on things overnight.  Winter Wheat condition ratings improved a bit in OK/TX/KS last week with KS now seen at 27% G/E, up 3%, OK at 20% G/E, up 4% and TX at 18% G/E, unchanged.  The weighted index improved for all states.  Goldman Sachs issued a note to customers yesterday that prices of commodities have fallen too far and investors should buy.  This as commodity index products post some of the worst returns of the year while equities continue to push to new highs on a daily basis.  More articles about 2,800 dead hogs being found in a Chinese river.  Their hog herd was 460 million last year.

Lots and lots of talk about RINs and the ethanol mandate, although very few understand the situation totally.  The central problem to our ethanol issue at current is the fact the US consumer is driving less (due to high gasoline prices, economic conditions, etc.), at the same time we’re all driving more fuel efficient cars.  This has caused a drop in gasoline demand.  The problem with this is the Renewable Fuels Standard, which was published in 2007, never accounted for Americans driving less.  In fact, the law basically assumed Americans would continue to drive more every year, and therefore we’d be able to use more ethanol every single year.  When the aforementioned happens, we simply don’t have enough gasoline supply with which to blend a larger and larger share of ethanol with.  On top of that, we also never planned on having high priced corn (and therefore high priced ethanol) from back to back droughts  Yet, obligated parties still have to meet the mandate, and that is why RIN prices have spiked: you either blend the ethanol, or you buy the piece of paper known as a RIN to satisfy your obligation.  Well if you can’t physically blend more ethanol, you buy the paper which is what has caused a 1400% rally in the price of RINs since the beginning of the year.  Without producing and blending ethanol, you can’t produce RINs, and that is the other part of the problem: eventually we run out of those too.  We need to either drive more, adopt E15/E85, produce a ton of cheap corn which will lower ethanol prices and make E85/E15 more economical or export a ton of ethanol.  Take your pick…

Open interest changes yesterday included corn up 14,490 contracts, wheat up 3,480, beans up 3,780, meal up 1,550 and oil down 180 contracts.  Chinese markets were weak overnight with beans down 14c, meal down $6.80, soy oil down 42c, corn down 0.75c, palm down 39c and wheat up 4.25c.  Malaysian Palm Oil was down 39 ringgits to 2,411 (-1.59%).  Malaysia continues to be hamstrung by lower trending demand and record stocks.  Paris Milling wheat was down 0.43%, Rapeseed down 0.42%, UK Feed wheat up 0.23%, Corn down 0.56% and Canola is down 0.21%.

Call things mixed to weaker this morning as we correct yesterday’s rally.  Outside markets are mixed/negative toward commodities and today should be devoid of any market breaking news for the grains.  Lineups remain large in Brazil, but PNW basis is sinking on soybeans, while the Gulf still indicates some interest.  Technicals might be playing a negative role in the soy complex as we approach recent highs.  Everyone now gearing up for the March 28th reports.

Trade as of 7:20
Corn down 1
Soy down 5-10
Wheat down 2-4

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