Outside Markets as of 1:15 CDT:
Dollar Index down 0.350 at 79.857; NYMEX-WTI up $0.16 at $89.06; Brent Crude
down $0.37 at $110.86; Heating Oil down $0.0042 at $3.0565; Cattle firmer and
hogs weaker; Gold up $6.40 at $1719.10; Copper up $0.0075 at $3.6560; S&P’s
are down 3.25 at 1411.50, Dow futures are down 34.00 at 12,974.00 and
Treasuries are softer.
Financial markets gave back most of
the morning gains after weaker than expected readings off the ISM-Manufacturing
survey which shoved us back below the boom/bust level of 50.0 for the first
time since July. Many were quick to cite Hurricane Sandy for the
disruptions, but details seemed to suggest it had more to do with uncertainty
generated by the fiscal cliff than the super-storm. The new orders component
and the employment index did drop, but the production index actually
rose. If Sandy had forced widespread closures, the production index also
would have dropped. There was little for comments from Washington DC
which might have been a good thing. The dollar index remains under
pressure, trading at the lowest levels since October 31st. The
continuous commodity index was up 0.50% today to 574.28.
A rather uninspiring close today with corn giving up 8c
gains to see the front-end of the curve close down 1-2c. The deferred
contracts did manage to close in positive territory, pushing a bearspread bias
on the day. Slower than expected export shipments, weakness in wheat,
softening cash markets after last week’s movement and still no strong stopper
on the 246 December deliveries all seemed to be factors. Export
inspections were just 9.6mbu, the second-lowest shipment total of the marketing
year and well short of the 24.1mbu we need to ship each week to hit the USDA
forecast. Total shipments to date are 208.3mbu, down 48% from a year
ago. Worth noting, China took 2.01mbu off the PNW, an encouraging sign to
see them keep taking our corn. Farmer hedging today slowed quite
dramatically considering these prices were available last week after some
better movement early. Despite the lack of movement, cash corn basis
seemed to back off today. CIF bids were indicated at +78H, off a few
cents from Friday as the push seems to be about getting soybeans south of Cairo
before corn. Once the river closes in mid-December, corn will have to
move to the Gulf by rail, or go to Hereford, the PNW or possibly the
Atlantic. An article from Bloomberg said farmers could see freight costs
double as things need to move by rail instead of barge, or because the barges
have to be loaded so light in order to avoid grounding in the low areas.
Other newswires said the US Army Corp of Engineers intends to speed rock
blasting between Thebes, IL and Grand Tower, IL on 13% of the river rocks will
begin January 3rd. This could allow light loaded barges to
make it through the affected area. Parties are still petitioning the
President to release more water out of the MO-River, but no word on that
yet. Midday bids off the PNW looked a bit weaker as well with +100/108H
bid for Dec/Jan. +110/113H is available for Feb/Mar, but the majority of
corn isn’t actually working to the PNW, but instead being spread to another
domestic destination. Most ethanol production margin calculations remain
rather negative. In export news, an Israeli firm is tendering for
115,000MT of corn for Jan 20 shipment. COFCO (China’s state reserve
buyer) and Ukraine have continued their talks about Ukrainian corn working into
the country. Most still seem to think Ukraine could ship their first
cargo in December. Supportive to corn is the ongoing rains in Argentina
which are prompting acreage shift ideas from corn to beans. Heavy rains
will continue this week, but most see a drier pattern in the 6-10.
Brazil’s vessel lineup to load corn was seen at 1.942MMT vs. 1.593MMT a week
ago. Brazil’s corn planting progress is seen at 86.3% vs. 94.3% a year
ago according to Celeres. The summer crop is forecast at 37.1MMT and the
winter crop at 38.5MMT. One note of the COT report, commercial gross
longs (end users) saw their position drop 67,286 contracts, or 16.1%, to
364,511 contracts in the latest week. The specs have continued their
buying, but that’s a big drop by the guys who actually use the corn.
March corn looks as though the $7.15-7.75 range will continue for the foreseeable
future. Farmers sell at the top and end users buy at the bottom.
Looks like selling straddles and strangles could be a safe bet, kind of like
ADM has been doing as of late.
Wheat had a very similar session to corn, rallying overnight
and early, only to give up gains and close lower despite some weekend tender
business, dry HRW-wheat areas and more rain in Argentina. Wheat bulls
finally saw the export business they’d been waiting for when Egypt decided to
buy 165,000MT of US-SWW at $337/MT FOB, and 115,000MT of US-SRW at
$348-351/MT. As supportive as Egypt taking US wheat was the fact the
offerings from France and the Black Sea were somewhat limited. Egypt did
buy one cargo each from France and Romania. While this is certainly
supportive, it’s the higher pro wheats such as US-HRW which is so badly behind
the pace needed to hit the USDA’s export forecast. It would be very
encouraging to see Iraq move on some US-HRW in its current tender, but based on
the last trades, that might be a tall order. Bottom line is it looks like
importers are coming for US wheat now, but will need to continue to do so in
order to keep prices elevated. Australia’s harvest is moving past the
halfway mark, especially in W-Australia where it is 61% complete. Export
inspections totaled 14.2mbu today, above last week’s 8.1mbu but below the
23.8mbu needed weekly to hit the USDA’s mark. While not a new feature,
interesting to note the cash spread on the spot floor in Minneapolis and
KC. 12.0% HRW was quoted at +85/100H today, so using the offer side would
put it at $10.06. 14.0% HRW was quoted at +82H which would put it at
$10.13. If these two classes of wheat are nearly the same price, but one
offers you 2.0% more protein content, which would you rather own? Would
imagine mills will try working in more HRS were applicable. COT data out
Friday offered a couple interesting observations. First, the net long
position held by the funds in Kansas City wheat dropped to 26,735 contracts,
the smallest since the week of June 26th. This despite
commercial gross longs having been buyers for the past 5-weeks. On the
other side of the coin, Chicago wheat saw a big drop by the commercial gross
longs (end users) last week. That group shed 69,647 contracts (36% of
their position) in the latest week. This while specs bought roughly
10,000 contracts. In Minneapolis wheat, funds pushed their net long
position to 8,433 contracts, the largest since April 24th.
Some very different actions across the three wheat exchanges. Dry
forecasts remain for the southern plains the next 10-15 days. This should
be a back burner issue for the near-term, but will be a talking point
nonetheless. A little discouraging to see us get the business we wanted
and sell off, whereas all fall we rallied every time Egypt or a big importer
bought wheat from a competing nation because they were that much closer to
running out…
Soybeans managed a good close, finished up 12-17c, although
they were off their highs by around 8c. Without regurgitating most of the
news outlined above, supportive influences continue to be the wet forecasts in
Argentina, solid demand on both soybeans and products, and firm basis levels in
both the US and SA. Export inspections in the latest week were 51.1mbu
vs. 46.6mbu the week before and the 19.1mbu needed weekly to hit the USDA’s
mark. Interesting to see 2.0mbu destined for China inspected off the
Atlantic. Consolidated Grain & Barge (CGB) sent out an email to customers
today saying they will essentially stop taking barges north bound up the river
by December 9th. Celeres released data today on farm
marketings and planting progress with 50% of next year’s crop thought to be
sold vs. 40% a year ago. Plantings were seen at 83% vs. 88% a year
ago. They kept their soybean production outlook unchanged at 79.1MMT, but
this is lower than the USDA’s 81MMT. It was interesting to see the % of
average precip totals for South America this morning. One can definitely
see the trouble areas and the really good areas. Buenos Aires in
Argentina is definitely a trouble area with their reporting stations showing
308% of normal precip during the month. Other regions were anywhere from
158% (La Pampa), 796% (San Luis) down to 15% (Correnties). Brazil wasn’t
as saturated but did have some areas in the south which would have liked to
have received more rain. Most areas there were between 57-88% of normal.
Largest amount of open interest in January soybeans is at the $15.00
strike. Option expiration is around 20 days away, so keep it on the
radar. One last note on the COT data, funds continued to liquidate their
position last week, dropping their net long down to 73,150 contracts, the
smallest since February 14th. Their positions are following
the exact same trajectory as last year before the weather problems started.
6-10 South American weather forecast. Drying up in the
south where drier weather is needed.
Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
CHS Hedging, Inc.
The Right Decisions for the Right Reasons
The Right Decisions for the Right Reasons
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