Thursday, March 21, 2013

Overnight Highlights from CHS Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.008 at 82.771; NYMEX-WTI down $0.28 at $93.22; Brent Crude down $0.48 at $108.24; Heating Oil down $0.0053 at $2.8868; Livestock markets are mixed; Softs are better; Gold up $0.30 at $1608.00; Copper up $0.0100 at $3.4565; Silver up $0.103 at $28.920; S&P’s are up 0.50 at 1549.50, Dow futures are up 17.00 at 14,425.00 and Treasuries are weaker.

Mixed equity markets overnight with the NIKKEI +1.34%, but the CAC 40 -1.00% and the FTSE 100 -0.74%.  More poor European economic data overnight along with more drama in Cyprus is keeping things under pressure.  The Euro-area PMI fell to 46.5 from 47.9 in February, below the forecasted 48.2, and below the 50.0 contraction/expansion level.  The European recession is not bottoming, and could in fact be getting worse.  As troubling is the fact France’s manufacturing PMI of 43.9 is only slightly better than Greece’s 43.0.  I don’t think we’re prepared for France slipping into recession.  In Cyprus, The ECB said it will cut Cypriot banks off from emergency funds after March 25th unless the country comes up with a plan to post collateral for a bailout.  The country’s banks are remaining closed as ATM’s run out of cash across the island.  5-yr Credit Default Swaps for Cyprus are up 55bp to 1,002bp, while Argentine 5-yr’s re up 165bp @ 3,261.  Have to point out the huge moves going on in the Forex market this morning with the New Zealand Dollar up over 1.0% against all trading partners, and the Yen is up sharply as well with the JPYEUR +1.094%, JPYCHF +1.006% and JPYUSD +0.869%.  The EURUSD -0.139%.  Jobless claims and existing home sales are on deck in the US today.

Quiet Midwest overnight and only a skiff in the central plains this morning.  The precip event begins tomorrow in the southern plains with 0.25-0.85” falling in the far eastern reaches of HRW country.  This pushes East over Dixieland Saturday with similar totals.  Sunday will bring more moisture to KS with the entire state looking at 0.75”.  Surrounding states could pick up 0.25”.  Monday and Tuesday will see moisture in the ECB impact mainly OH with totals around 0.25-0.50”.  Things then get cold and dry in the 6-10 with the epicenter of the cold over KY/TN/IL/IN/OH but extending all the way to E-NE/E-KS.  The dryness will be centered over MN/IA/WI.  Similar readings in the 8-14.  The 6-10 below normal cold readings are the deepest purple I can remember seeing on these maps.

Mixed trade overnight with weaker grains but firmer oilseeds as soybeans put together a two-day winning streak for the first time since the beginning of the month.  Overnight wires suggest the oilseed strength is tied to continued Brazilian shipping delays, and the belief that the cancelation talk earlier in the week was actually origin or slot switching, not outright cancelations.  See article below.  The weakness in grains seems tied to easier cash markets thanks to heavy far movement of corn and spring wheat earlier this week.  Spreads have been on the defensive, and cash basis on corn is weak across almost every demand center.  Still, the technical picture is much improved for both corn and wheat, implying further upside to come, and the continued rise in open interest signals trend followers getting onboard.

Actually a fair amount of news overnight so check the bottom of the email for more articles.  China released Feb import data overnight with wheat at 222,519MT, down 40.2% y/y, although the US did ship 57,750MT which was up sharply from a year ago.  Corn imports were 394,090MT, down 24.31% y/y, and all of it coming from the US.  Soybeans imports were 2.898MMT, down 24.33% y/y with all of it coming from the US.  Jan-Feb imports of beans were down 8.97% at 7.681MMT.  The soybean shipments could be due in part to the Chinese New Year, or the willingness to “de-stock” inventories ahead of South American harvests which as we’re seeing now was a risky proposition thanks to logistics.  Japan bought their 132,777MT of milling wheat with 76,000MT coming from the US.

Vessel lineups at Brazilian ports continue to rise with 206 boats waiting to load beans, meal and pellets totaling 12.280MMT.  Algeria bought 350,000MT of optional-origin milling wheat at $330/MT C&F, Libya bought 50,000MT of Hungarian wheat and an Oman flour mill bought 10,000MT of Indian-origin milling wheat.  A Bloomberg article, see below, quoted an official at the second largest feed mill in China who said China may have a 20-30MMT annual shortage in feed grains within 2-3 years.  He said China’s meat consumption could expand 25% within 5-years.  He also said China would import 10MMT of corn per year now if there were no policies restricting imports.  Investment bank Credit Suisse cut their 12-month corn price forecast to $6.00/bu.  Wheat to $6.90 and beans to $13.50.

Open interest changes yesterday included corn up another 14,200 contracts, wheat up 1,940, beans down 400, meal down 3,550 and oil up 2,160.  Since the price low on March 7th, corn open interest is up 97,828 contracts signaling a piling on of trend type following funds, and giving this rally some legitimacy.  Chinese markets were firmer overnight with soybeans up 11.75c, meal up $6.20, oil up 56c, corn unchanged, palm up 72c and wheat down 0.75c.  Malaysian Palm Oil up 15 ringgit at 2,456.  Paris Milling Wheat is currently down 0.51%, Rapeseed up 0.27%, UK Feed wheat down 0.75% and corn up 0.76%.

Call things mixed to start with an eye on export sales in 10 minutes.  Corn sales are expected at 0-300,000MT, beans at 150-700,000MT and wheat at 300-825,000MT.  Another big wheat number (700+) would go a long ways to giving legitimacy to the current rally.  We are running into producer selling and most basis levels are on the retreat.  Keep this in mind as we climb higher towards more marketing objectives.  Funds still short a pile of wheat.  Hog board crush spreads are hitting fresh contract lows.

China Has No Reason to Cancel Soybean Orders, CHS’s Liu Says
2013-03-21 10:05:10.898 GMT

By Bloomberg News
     March 21 (Bloomberg) -- Chinese crushers have “no ability
or real intention” to cancel soybean orders, Liu Guoqiang,
general manager of CHS (Shanghai) Trading Co., said at a forum
in Kunming. CHS is a U.S.-owned grain trader.
     Liu’s response came after Shandong Chenxi Group, a Chinese
soybean crusher and trader, said this week that it plans to
cancel orders for almost 2 million metric tons of Brazilian
cargoes on shipment delays.
     “Soybeans are needed in China and supplies are hard enough
to buy from March to May,” Liu said. “The comments to media by
some Chinese crusher wanting to cancel 2 million tons of
soybeans may have other motivations.”
     Only one cargo of soybeans was resold by a crusher, and
there are no cancelations and won’t likely be any in the
“near” future, according to Liu.

China May Have 20m Tons Shortage of Coarse Grain, Feed Mill: Yi
2013-03-21 07:10:09.204 GMT

By Bloomberg News
     March 21 (Bloomberg) -- China may have 20-30m tons of
annual shortage in feed grain supply in 2-3 years, boosting
needs for imports, Yi Ganfeng, vice president of Beijing
Dabeinong Technology Group Co., the country’s second-biggest
feed miller, said on the sideline of the JCI grain conference in
  * As China’s livestock industry matures, feed mills will
    prefer to use bulk-commodity grain, including corn and dried
    distillers’ grains, in place of traditional materials such
    as oilseed meal, used by smaller farms now, Yi says
  * China’s meat demand may expand about 25% from current level
    in about 5 years, spurring consumption of feed grain, Yi
  * China may import 10m tons of corn a year now if there were
    no policies restricting imports, Yi says

Oil Companies Using RINs to Remove Ethanol Law, Growth CEO Says
2013-03-20 13:24:30.99 GMT

By Mario Parker
     March 20 (Bloomberg) -- Oil companies are manipulating the
value of Renewable Identification Numbers, or RINs,used to help
the government track biofuel use, in an effort to eliminate the
country’s ethanol mandate, Growth Energy Chief Executive Officer
Tom Buis said today on a conference call.
  * Growth Energy is Washington-based ethanol trade group

Mexico Corn Production Will Rise in 2013, USDA Unit Says
2013-03-20 19:06:01.573 GMT

By Steve Stroth
     March 20 (Bloomberg) -- Output in the year starting Oct 1
will rise to 22mt from 21.5mt a year earlier, the U.S.
Department of Agriculture’s Foreign Agricultural Service said in
a report posted today on its website.
  * Sorghum production will be 6.8mt, compared with 6.9mt a yr

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

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