Overnight Highlights from CHS Hedging's Tregg Cronin 1-31-2013

Outside Markets: Dollar Index Dollar Index up 0.019 at 79.300; NYMEX-WTI down $0.34 at $97.59; Cattle markets are firmer; Gold down $9.10 at $1672.40; S&P’s down 3.00 at 1492.25.

Mixed financial markets around the globe overnight with equities in Asia near unchanged, but Europe is under pressure this morning.  The IBEX-35 is down 1.81%, FTSE MIB -0.80% and the CAC-40 is -0.94%.  The Portuguese 10-yr treasury yield is up 16.4bp to 6.081%, and Forex markets are fairly quiet.  Headlines of note include Germany’s unemployment rate falling to 6.8% from 6.9%, Shell and Deutsche Bank missing earnings estimates.  A big day for earnings with AM reports coming from Potash of Saskatchewan, Time Warner, Dunkin’ Brands, Dow Chemical and Xcel Energy.  Economic data on tap includes Initial Jobless Claims (350,000), Employment Cost index (0.5%), Personal Income & Spending (+0.8% & +0.3%) and the Chicago Purchasing Managers Index (50.5).

Precip the last 24 hours pushed East into Appalachia and the East coast where totals of 0.50-3.00” fell.  Parts of the ECB picked up additional moisture to the tune of 0.10-0.50” in OH/IN/IL.  Most of the central and WCB were dry.  Snow is falling in the ECB this morning while the WCB and southern plains are dry.  Nothing doing on the 5-day forecasted precip map aside from 0.40” seen in the Northern RR-Valley.  Warm up still seen beginning Feb 5^th through the 9^th with above normal temps in the entire Midwest, while above normal precip is seen for the majority of the corn belt including East River SD/ND/NE.  Plains are seen normal, but better chances for TX in the 8-14.  See link.  River should also be in good shape.  Second link.  The attachment details the next 48-hours in SAM which is the best chance for rainfall the next 10-days in the dry areas of Argentina.  Best totals look like 0.50”.  Forecasters talking rains at the tail end of next week, but little confidence is being given.  Map below shows yesterday’s highs.  90’s in Argentina.

http://www.cpc.ncep.noaa.gov/products/predictions/814day/index.php

http://water.weather.gov/ahps2/hydrograph.php?wfo=lsx&gage=eadm7

A little bit of profit-taking overnight as would be expected after the impressive gains witnessed yesterday.  The overnight headlines don’t offer a lot of market moving information, aside from the fact US exports of corn and wheat continue to be outdone by other origins.  Weekly sales this morning could prove interesting.  Not much expected from corn (120-400) or wheat (300-625), although beans have quite the estimate range (250-900).  The main focus is still South American weather, and great attention will be given to Sunday night and Monday morning weather maps.  The highs for the week are probably in until more weather detail is released.  The poor ethanol data released yesterday grabbed a lot of headlines.  The slowdown might be working, however, as estimated margins have improved to +$0.10 vs. +$0.06, and are said to be the highest since September.

Other headlines of note overnight included Iraq issuing a tender for 50,000MT of wheat with a bidding deadline of February 17^th.  All major exporters were included and results will be scrutinized closely.  South Korea bought 110,000MT of feed wheat from India overnight, and was also said to have bought 55,000MT of European origin corn.  That is an unusual connection, but NGMO specs were said to have been a consideration.  Also of interest, the Russian Ag Minister was quoted as saying Russia should move to lower the grain duty in imports.  Russian domestic milling wheat prices rose to new record last week, above 2008 records.  Not much change to SAM weather maps to speak of.  A lot of corn and soybeans were sold yesterday, and it was evident in basis and spreads yesterday.  Export bids on both fell, as did several crush plants.  $7.40/50 and $15.00 will prove difficult levels to trade above with eager producer selling.  Palm Oil rose to its highest level in 3-months on speculation Malaysian stocks will ease from record levels in coming weeks.

Big jump in open interest yesterday in corn of 21,010 contracts, which makes over 50,000 contracts in the last 5-sessions.  Wheat was up 1,580 contracts, beans up 13,690, meal up 7,720 and soy oil was up 7,320 contracts.  These are huge jumps in the soy products and confirms the trend followers are getting on board and fresh speculative money is entering our market.  Chinese markets were better with beans up 0.25c, meal up $7.20, soy oil up 69c, corn up 0.75c, palm up 61c, and wheat up 3.50c.  Malaysian Palm Oil was up 47 ringgit (1.87%) to 2,557.  Paris Milling Wheat is up 0.10%, Rapeseed up 0.78%, Corn up 0.21%, UK Feed wheat unchanged and Canola is down 0.21%.

Look for weaker trade today as we consolidate the recent gains.  Farmers leaned into the market in a big way yesterday, and cash and spreads should buckle a little bit in response.  How the market swallows up what moved will tell us a lot about the expectations for a continued rally.  Open interest is signaling markets want to go higher.  Weekend weather maps will be key.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Afternoon Recap from CHS Hedging's Tregg Cronin 1-29-2013

Outside Markets as of 1:20: Dollar Index down 0.177 at 79.571; NYMEX-WTI up $1.03 at $97.48; Brent Crude up $0.76 at $114.24; Heating Oil up $0.0383 at $3.0999; Livestock markets are weaker led by feeders; Softs are mixed with Sugar down 2.03%; Gold up $9.10 at $1662.10; Copper up $0.0280 at $3.6900; Silver up $0.585 at $31.370; S&P’s up 5.00 at 1502.00, Dow futures up 57.00 at 13,890.00 and Treasuries are being offered.

Limited time to get a write up together again today due to meetings this afternoon.  Main themes today were definitely South American weather maps as the overnight run was drier, but midday maps wanted to put more moisture into the equation for the 10-15 day.  If there is any unity to these models, it seems that the nearby forecast continues to have amounts reduced as it draws closer, and the promise of better moisture is always in the extended maps.  By the time that extended map becomes the nearby forecast, moisture is taken out for Argentina and S-Brazil.  Sounds an awful lot like the US in July.  No extreme heat is seen in either location, although Argentina is going on its 6^th week of dryness.  This seemed to be behind the soy complex strength, along with the building vessel lineups in Brazil.  When the 3.0MMT soybean lineup is combined with corn and meal, it totals close to 7.5MMT which would be a record for this date.

Egypt  continues to make headlines, but mainly for the wrong reasons.  The Egyptian defense chief warned that political unrest could bring about the “collapse” of the state after a week of street battles which has left dozens of Egyptians dead.  The effect on the wheat market is such that it may make it more difficult for the world’s largest importer to secure financing and acquire stem.  On top of that, recent comments suggest Egypt has enough stocks to get to June which is when they harvest new crop.  Highly unlikely considering the last time they bought wheat was for LP-Feb.

The oil cleanup from two barges hitting a railroad bridge near Vicksburg, MS continued today and in the process backed up almost 800 barges on either side.  Traffic has basically been halted, and this is probably seen supporting up front bean barges.  Caution thinking it’s nearby demand, as the PNW continues to soften today on bean shuttles with most bids +145H at best.  If one offered a train, that bid might not be there.  Call those bids down 10-15c w/w.

Another big headline today was White Energy, Inc, an ethanol producer in Plainview, TX is planning to idle operations due to high corn prices.  The Plainview plant was said to have name plate capacity of 120 million gallons a year, and their Hereford TX plant which has capacity of 45 million gallons, is also said to be running at reduced capacity.  This plant follows a long list of closures which will keep ethanol production on a weekly basis under pressure and at risk of not meeting the 4.500 billion bushel corn grind forecast.  Spot margins were said to be improving with some of the recent plant closures, but 2013 RIN values were said to be changing hands between 31c and 33c this afternoon which wouldn’t suggest production is ready to roar back open again.  Means plants would rather buy a RIN at 31c/gallon than produce the actual gallon of ethanol.  Tomorrow’s weekly ethanol production figure should be interesting.

State wheat conditions from KS/NE/OK/SD were well reported this morning and during the day session so won’t rehash them.  They’re poor.  We knew that at the end of December, and they haven’t improved.  Still hard to trade the current conditions or possible drought on January 29^th.

Crush plant basis for soybeans looks firmer in the WCB going home today, but CIF bids admittedly losing steam along with their PNW counter-parts.  CIF corn bids were unchanged with spot Illinois River basis at 2.3c under gross delivery equivalence, February is at DVE and March is 3.4c above DVE.  Probably part of the reason the CH/CK traded an inverse most of yesterday.  The Rogers Roll, or pre-GSCI roll, looks like it got underway late today with overt pressure witnessed in the CH/CK and SH/SK.  SH/SK took it in the throat today, down 2.25c to +12.00c.  SN/SX was up 4.0c to +116.75c.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Overnight Highlights from CHS Hedging's Tregg Cronin 1-29-2013

Outside Markets: Dollar Index up 0.052 at 79.802; NYMEX-WTI up $0.13 at $96.56; Brent Crude down $0.06 at $113.38; Heating oil up $0.0023 at $3.0639; Livestock markets are all taking a bit of a breather this morning; Gold up $8.70 at $1661.60; Copper down $0.0025 at $3.6590; Silver up $0.265 at $31.040; Softs are mixed although Cotton is up over 1.0%; S&P’s are down 4.75 at 1492.00, Dow futures are down 29.00 at 13,803.00 and Treasuries are firmer.

Quietly weaker equity markets around the globe overnight, although Australia’s main equity index continues to show strength.  Last night it tacked on another 1.11% and is trading at the highest levels since mid-2011, not too different from the DJIA or S&P.  Main financial headlines would include Ford beating earnings’ estimates by reporting Q4 EPS of $0.31/share vs. the $0.25 estimate.  Revenues were a beat by more than $3 billion.  Other notable earnings this morning will include Polaris, Pfizer, Harley-Davidson, Valero and the Canadian Pacific Railway.  Overnight, India’s central bank cut its benchmark rate to revive growth as inflation there cools.  United States Bakery is in talks to buy Hostess bread brands for $29 million.  Case Shiller Home Price Index later today seen up 0.7% m/m.

Precip in the last 24 hours was heaviest in SD/ND/MN/WI/MI where totals as high as 1.0” fell north of Madison, WI.  This storm continues to work east this morning bringing more rain to WI/MI, but a separate system is tracking across OK this morning with watch-boxes present.  KS is also seen getting some rain.  Most of the accumulation in the southern plains will take place in the eastern part of the state where 0.50-1.00” is possible.  The 5-day forecast keeps a heavy system in place over AR/MO/IL/MS/TN and surrounding areas where as much as 2.50” is seen dropping.  This should aid in keeping river levels adequate and the STL River Gauge below is seen rising through Feb 1 because of it.  NOAA’s extended maps showed a stark change to recent model runs, bringing in much above normal temps for TX/OK/KS/NE in the 6-10 while precip looks more normal.  This would be interesting considering all of KS was 70+ degrees yesterday.  The 8-14 shows a similar looks.  Follow the link below to see the maps.  They’re worth the look.  South American maps don’t look a whole lot changed this morning, although S-Brazil is looking wetter in the 6-10.  The 1-5 day continues to call for precip across 2/3’s of the Argentine growing areas.  Around 1/3 will still be subject to moisture stress as we head into February.

http://www.cpc.ncep.noaa.gov/products/predictions/610day/index.php

Slightly better trade overnight across the major Ag markets as markets attempt to add to yesterday’s late rally.  Several analysts much smarter than myself were questioning the spark for yesterday’s rally, and probably the additional gains overnight at that, because there didn’t seem to be a ton of new developments in the last 36 hours.  Some cited the WCB drought, others a pickup in corn export inspections and some the fact China continues to take US purchased corn.  More than anything, it appears all of our major grains are locked in ranges, and will continue there until fresh news comes in.  One thing is certain, the longer we coil up inside ranges, the larger the break out should be when it comes.  Brazil’s biggest soybean state of Mato Grosso is 7.1% harvested vs. 2.8% a week ago and 5.8% a year ago.  Brazil’s soybean lineup is picking up with 3.4MMT as of yesterday.  This along with 1.3MMT of meal and 2.8MMT of corn totals 7.5MMT, an all-time record for February.

Headlines overnight included Dr. Michael Cordonnier cutting hit Argentine soybean production estimate 1.0MMT to 52.0MMT, bringing his estimate in-line with Oil World, but 2MMT below the USDA.  Two oil barges struck a railroad bridge near Vicksburg, MS yesterday backing up more than 300 barges on either side of the bridge.  Cleanup is thought to continue until Thursday and should limit barge traffic.  Could possibly put a bit of strength in ETA soybean barges.  According to Agriculture & Agri-Food Canada, the Canadian wheat harvest in 2013/14 will climb 4.8% to 28.5MMT thanks to larger acres.  The USDA’s Foreign Ag Service said Russia’s wheat exports will be 11MMT for 12/13 vs. the 10.5MMT currently forecasted by the USDA.  Several southern plains states released winter wheat condition ratings yesterday afternoon.  KS’s wheat crop was rated 20% Good/Excellent vs. 24% on Dec 30.  OK was seen at 5% G/E vs. 11% in December, and only 22% of the state’s wheat was being used for grazing vs. 36% on average.  NE reported 8% G/E vs. 14% in December, and SD reported 3% G/E, unchanged from the end of December.  South Dakota’s report did make mention of better snow cover since the last report.  Definitely going to need spring moisture.  The KWN/WN is currently trading at +57.75c.

Open interest changes yesterday included wheat down 1,350 contracts, corn up 4,650, beans up 5,740, meal up 6,180 and soy oil up 3,510 contracts.  Corn continues to see solid gains in open interest, suggesting managed funds are still interested in re-entering that market.  Chinese markets were steady/better overnight with beans up 0.25c, meal down $0.30, soy oil down 22c, corn up 1.25c, palm up 1 and wheat down 4c.  Malaysian Palm Oil re-opened after its holiday and saw a 1.23% rally with the April contract closing up 30 ringgit at 2,475.  Paris Milling Wheat is up 0.40%. Rapeseed is up 0.68%, Corn up 0.32%, UK Feed wheat up 0.02% and Canola is unchanged.

ADM Marshall, Chicago 25’s, Hereford and PNW corn basis was all a bit firmer yesterday based solely on posted bids.  PNW beans, however, looked to be down at almost every export house by a good 5c.  The CH/CK is inverted by 0.50c this morning.

Call things better to start as we continue to chop inside ranges.  Two-sided trade again today wouldn’t surprise anyone, and with no real data releases set for today, a breakout doesn’t look likely.  South American weather, weekly data sets and farmer movement remain the focus.  Keep an eye on new crop ’13 prices as we head into the insurance pricing period.  There are a lot of producers who are not at all comfortable with the prices they’d have to sell today if they had to, even if they are concerned about dryness in the WCB.

Trade as of 7:00

Corn mixed

Soy up 1-2

Wheat up 1

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Closing Comments 1-28-2013

Markets closed firmer today after having spent most of the session trading choppy.

Corn lead the way firmer up 8-9 cents on the front end, with new crop up 6, soybeans gained 7 cents a bushel, MPLS wheat was up 2, KC wheat was up 3, CBOT wheat was up 3, the equity markets where mixed with the DOW off 14 points, the S & P off 3 points, the NASDAQ up 6, the dollar is about unchanged, and crude up about 60 cents a barrel.

Not a bad day for the grain markets; but we still remain rather range bound.  Technically about another nickel on March corn could open up some more strength. 

The strength today seemed to be two fold; a little from the weather as it remains very dry in most of the US especially the HRW areas; while some parts of Argentina look to have some heat with dryness; while other parts of South America are seeing harvest delays; perhaps keeping the US in the export game for soybeans. 

The second reason for the strength had to be the good export shipments.  Beans remained good which is no surprise; but the surprise or good thing was the corn shipments at 21.1 million bushels.  The best since September and right at about what we need on a per week basis to meet USDA estimates.  The wheat number also came in slightly above 20 million; a little less then we need but an improvement over the past few months.  Personally with the way logistics and elevations work I think seeing corn and wheat above 20 million with beans still above 40 million is good.

Also heard of some improving ethanol margins over the past few days.  Stronger cattle prices also gave a little support to the corn market.

Overall I think corn still needs to prove it can find demand or stabilize demand at these levels for all of our users.  Ethanol demand overall looks to be a little weaker with a Poet Ethanol plant shutting down recently in MO.   But also seen a local article that indicated some local ethanol plants thought the way to make it through tough times was via increased efficiencies or grinding more thus lowering the overhead per unit cost.

As for other news don’t look for many known headlines; perhaps a black swan event or two; but the next known headline will be the USDA crop report February 8^th; which is a Friday.  We will then see if the USDA has seen many reasons to increase or decrease our demand; but typically the February report isn’t one filled with huge surprises as we just did the January that included the quarterly stocks recap.  The February one could show some adjustments for crop sizes around the world; mainly South America and right now if I had to guess I would say most are leaning towards a little bigger bean crop with perhaps slightly smaller corn crop. 

After that we will have the USDA outlook towards the end of February and that is where we could see some more talk of 95-100 million acres of corn with perhaps trend line or better yields.  I don’t think many producers will agree with the numbers that come out; but the risk is that some funds (big money) agree and see it as written in stone.  Some of the bulls will continue to talk about the drought; but most will put that on the back burner until later in spring as a matter of a fact a drought early spring might mean corn planted fast and that was one reason the USDA had to increase the yields in the May/June reports last year. 

I guess what I am trying to say is right now where I sit it just looks like we have the stages set for some sort of repeat of last years price action over the next couple months.  First off we just don’t seem to have the funds looking to get in and get long grains.  If that can happen at some point for some reason then money flow can overweigh the perceived fundamentals.  But if we look at fundamentals we simply have many starting to talk about and play the big crop coming card.  The scary thing is that without a repeat of last years weather they are probably right.  We simply look to grow plenty of supply especially if the market has done it’s job and curbed demand.  Meaning that demand that we had won’t come back overnight; it might not even come back all marketing year.

As for the reality of what could happen; that remains up in the air.  A perfect growing season gives us potential for corn under 4.00.  While a repeat of last year or worse probably gives us potential for 10.00 corn or more.

Adding a little fuel to the fire has to be both the producers and end user situation.  I don’t have an end user of corn calling me up looking to book new crop.  They all think we are hitting 100 million acres with 160 plus yields leaving a carryout of over 2 billion bushels.  While on the other hand I think most producers have far less marketed/hedged/or protected then they perhaps ever have.  Because of what happened the past couple years where any early sales simply looked bad.  Plus the fact that our conditions are starting far worse than a year ago.  No subsoil for most of the western corn belt doesn’t give us record corn yields.

I don’t know which group will be right; whether mother nature will allow us to grow a huge crop or a small one.  All I see is that at this second we seem to be set up for a volatile ride.  One that could be straight down or straight up.  

As for the other grains I really feel were they go simply depends on corn.  I think the potential for wheat to be much higher is there today; but if we see a huge corn crop I just don’t see wheat being at 10.00 or 12.00; nor do I think beans  could with stand tremendous pressure from the corn market.  Corn is king until proven otherwise; so that tells me that there is still huge risk potential for those guys that are growing wheat.  To think that there isn’t a couple dollar risk just isn’t accurate.  Add that to the fact that we might only have ½ of  wheat crop if we are lucky and we could quickly see things that are not exactly printing profits. 

Bottom line is some sort of risk management should be used.  I am not here to see sell everything or sell nothing; more so I want to promote using risk management that gets you comfortable.  So I think that means a pro-active plan that includes some exit dates to either make some sales or get some protection in place.  Don’t save everything for the last minute or  you could either be a hero or a goat.

If you want to put together a marketing plan please give myself or one of the guys in the office a call.  Don’t forget we are a CHS Hedging branch so that allows one to use tools like simply buying puts for protection or maybe making some sales and buying out of the money calls so you don’t miss the next big rally.

As for other things happening today it did feel like wheat basis was a little defensive.  But I would note that the railroad has slipped a little bit; I didn’t receive cars at any of the 4 locations that I thought might over the weekend and sources say that car supply is a little tighter then it has been. That could lead to a little premium getting added to basis in a hurry; but freight will need to slow down for a few weeks before we see any major pop as most mills have been very full.

The birdseed market is steady; with some buyers looking for some offers but overall on the slow side.

We do have a couple buyers now willing to do some new crop act of god millet contracts.  Please give me a call for more info on those.

Don’t forget that we will have our weekly MWC Marketing Hour Round Table this Wednesday in Onida at 3:30.

Please give us a call if there is anything we can do for you.

Afternoon Recap from CHS Hedging's Tregg Cronin

Financials

Outside Markets as of 1:20: Dollar Index up 0.079 at 79.953; NYMEX-WTI down $1.47 at $95.22; Brent Crude up $0.23 at $112.67; Heating Oil up $0.0007 at $3.0689; Livestock markets were mixed with cattle firmer and hogs weaker; Softs are firmer; Gold down $8.20 at $1685.20; Copper down $0.0225 at $3.6825; Silver up $0.073 at $32.250; S&P’s are down 0.75 at 1488.75, Dow futures up 25.00 at 13,721.00 and Treasuries are flat.

The highlight of financial markets today was probably the vote in Congress today on raising the debt ceiling.  The latest reports said it would most likely pass, but the interesting thing was the rider House Speaker Boehner attached to it.  Apparently he added an amendment that said until Congress passes a budget, there will be no pay for the legislators.  Hopefully it sticks and passes, and has some teeth of enforcement.  Otherwise, the drop in crude oil was probably most noteworthy as capacity on the Seaway pipeline was reduced and the International Monetary Fund cut is global growth forecasts.  Wholesale gasoline remains at $2.8300 on the board.

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Corn

Very choppy trade on a low-volume session which saw prices two-sided before selling pressure showed up to drop corn to the lowest level in 7-sessions.  If one is looking for the news behind the selloff, they likely won’t find it.  Farm movement was limited at best, and not behind the sell pressure.  Calendar spreads were weaker, however, so there did seem to be some commercial influence behind the sell flow.  Others also cited the expectation for another poor week of ethanol production when that data is released tomorrow, and probably another slow week of export sales on Friday.  The idea of the US being unable to slow it’s feed demand won’t be much of an issue if we continue to post ethanol and export numbers like we did last week until March 1^st.

Friday will see the Jan 1 Cattle on Feed report released after the market close with analysts looking for Jan on-feed at 95.8% of a year ago.  Placements are forecast at 104.1% during December, and marketings are seen at 93.2%.  On its face, it would look like a bearish-cattle, bullish feed-demand report.  No reason to argue with the average trade estimates, although one well respected analyst is looking for even larger placements and smaller marketings.  The National Weather Service said the stretch between STL and Cairo will remain navigable through February 20^th.  From a pure technical standpoint, March corn ran into its 61.8% retracement of its 7.67-6.78 sell off at 7.33 and was never really able to penetrate it.  The short-term trend is down with support seen at $7.07.

CIF bids weakened further today with spot barges down 2c to +52H, Feb down 2c to +55H and Mar steady at +60H.  Illinois River basis continues to weaken with spot now 6.8c below DVE and Feb 1.3c below.  Should continue to apply pressure to the CH/CK as it did today.  The CH/CK closed at -2.00c, down 0.25c.  Saw some small commercial elevator bullspreading, but most elevators are either patient waiting for -3.00c+ or don’t have an incredible amount of basis length to push to May.  The CN/CZ closed down 5.75c to +126.50c.  The 6-month RBOB/Ethanol strip closed at $0.58/gln, providing plenty of incentive to keep blending ethanol if refiners aren’t opting for Brazilian sugarcane ethanol.  PNW corn shuttles stabilized at +110/112H, but Grp-3 was weaker, down to +10/15H.

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Wheat

In a somewhat surprising reversal, wheat went from lower overnight to higher during the day session, only to sell off along with corn and soybeans and close lower.  Like yesterday, there wasn’t an overabundance of news to really drive wheat prices, but newswires wanted to talk about the better forecasts for this weekend and in the extended outlook which promise to bring precip to the parched southern plains region.  E-KS has chances this weekend for 0.60”, but not much for the majority of the HRW belt.  Otherwise, there wasn’t any export business to speak of, and the clock is ticking on the US program.  The chatter in the news about Russia removing the 5% import duty on wheat offered fodder for writer’s, but not much else.

Demand for spring wheat seed in the United Kingdom has risen to a record after rains prevented farmers from planting during the autumn.  The wet conditions restricted fall cultivation, and prevented seed bed prep.  Ukraine’s grain stockpiles as of Jan 1 were 8.4MMT, including 5.8MMT of milling wheat according to the Ag Minister.  Corn stockpiles were 13.8MMT and barley at 5MMT.  Ukraine needs 2.6MMT of milling wheat for domestic consumption before the 2013 harvest starts.  India continues to sell feed and milling varieties and are one of the main causes for the US program remaining subdued.  Wheat has rejected the 38.2% retracement of the 8.95-7.36 sell off at 7.97 basis Chicago futures.  Short-term trends are down without much in the way the next 20-30c.

Spot floor trades in Minneapolis were up 10-15c with 14.0% at +75/100H, while 15.0% was seen at +110H.  There were 55 cars on the floor.  KCBT protein scales were unchanged with 12.0% at +87/102H.  SRW barges were unchanged at NOLA while HRW slipped 2-7c on the bid side to +117/118H through May.  Calendar spreads could be called uniformly weaker as the MWH/MWK closed down 0.25c to -12.00c.  This spread traded as wide as -12.25c, but opinions are split on how wide it might go.  The general opinion is with elevators note toting a lot of basis length, and the new vomo specs/storage rates it works wider.  However, the specs appear to be the only one’s long the spread, so waiting for -14.00/-15.00+ might get lonely.

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Soybeans

Big reversal day in soybeans, giving back almost all of the previous day’s gains and taking out yesterday’s low.  Odd was the fact movement of soybeans yesterday was much heavier than today, prompting some to question whether yesterday’s buying was fund purchases or export pricing?  The heavy weakness in the calendar spreads today would suggest there was commercial participation on the sell side.  The fact is the bulls need/want to focus on South American weather which is nearly ideal for Brazil and a bit drier/warmer than wished for in Argentina.  Yet, neither country has an outright disaster, and until we’re talking about a 4-6MMT reduction in the forecasts from the USDA, going to be tough to go up every day.  It’s still very early for both bears and bulls.

Midday forecasts kept a light rain chance in for this weekend, although accumulation isn’t expected to be large.  Generally under 0.30”.  The 6-10 is what most are focusing on with chances in the main growing regions.  See 6-10 GFS map below.  The Euro 6-10 wasn’t quite as generous and kept rains farther west. (Also below).  Brazil remains awash with rain throughout, a limited concern.  Still plenty of people concerned about where we’ll be able to buy beans and therefore meal later this spring and summer.  Some analysts already doing the math for importing beans from Brazil.  Basis in some slots in Brazil were firmer; others weaker.  Call it a wash w/w.  No real technical damage done to bean charts today.  $14.21 would be a downside trigger for additional selling pressure.

CIF bids were softer again today with spot NOLA barges down 1c to +95H, Feb unchanged at +83H and Mar down 1c to +72H.  Surprisingly, river basis remains well above delivery for spot boats at +35c, but drops below delivery equivalence by 6.9c for Feb to go back above delivery by 15c for March.  April through July Illinois River basis is 12.8-15.1c above delivery equivalence which illustrates how tight the bean market is perceived to be, despite the fact exports should taper off quite rapidly Mar 1 forward.  Many traders looking for the SN/SX to make a run at $2.00 from its current level of +115.75c.  New crop river basis is also pushing above delivery equivalence for Nov/Dec as cash traders suggest Sinograin is buying on the back end of the inverse.  Nice to know where they see value.  SH/SK fell 2.50c to +10.00c thanks to the sloppy front-end on the river.  PNW basis is also said to be a little softer, but elevators just aren’t confident about dumping what length they do have or even going short in any meaningful tonnages.  Where does the farmer sell?

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Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Overnight Highlights from CHS Hedging's Tregg Cronin 1-23-13

Outside Markets: Dollar Index down 0.140 at 79.734; NYMEX-WTI up $0.08 at $96.76; Brent Crude up $0.16 at $112.60; Heating Oil up $0.0040 at $3.0722; Livestock markets are all trading a bit weaker this morning; Softs are mixed; Gold is down $0.20 at $1693.00; Copper is up $0.0050 at $3.7090; Silver up $0.108 at $32.285; S&P’s are down 3.25 at 1486.50, Dow futures are down 13.00 at 13,683.00 and Treasuries are firming as I write.

Quiet equity markets around the globe overnight, although the NIKKEI did drop over 2.0%.  The Japanese government hit back against critics who say they are trying to revive their economy at the expense of the nation’s trading partners.  At current, the JPYUSD is down 0.18% at 88.5425.  There will be some big earnings announcements today including Apple, McDonald’s, WellPoint, Motorola and Coach.  Apple will report after the close and is expected to announce 47.8 million iPhones sold.  MBA Mortgage Applications rose 7.0% last week after a 15.2% jump the week prior.  Today we’ll get the FHFA House Price Index which is expected to be up 0.7% m/m.  Secretary of State Clinton will testify before the Senate Foreign Relations committee on Benghazi.

Some light snow falling in the upper-Midwest overnight and that system will work East over the Great Lakes later today.  5-day forecasted precip maps don’t amount to much with the heaviest moisture in E-KS to the tune of 0.60”.  The PNW will continue receiving rain on the coastal side.  Extended maps from NOAA look cool and wet during the 6-10 and 8-14.  Odds look good for some additional snow accumulation.  TX and most of the southern plains will see normal/above temps, but normal/below precip.  Overnight maps from South America don’t looks a whole lot changed with dry and hot in the 1-5 days for Argentina, although the 6-10 looks a bit wetter for southern Argy.  Not so much for the dry northern areas.  A change in the long-range maps will be critical come February 1.  N-Brazil looks to continue receiving rainfall as harvest tries to progress.  As noted in yesterday’s emails, lineups are building for both corn and soybeans in Brazil, and weather will become an increasingly important factor for logistics, not just crop development.

Slightly firmer trade overnight in all of the major Ag markets as wheat stabilizes and recovers a couple cents of yesterday’s dime losses.  Would really like to be able to point at some specific news or market development this morning, but newswires are notably absent, and overnight hedging activity was limited to a handful of contracts.  The drivers of price seem to be pretty clear: South American weather, US domestic corn demand, the overall health of the ethanol industry, wheat/corn exports (or lack thereof), and the financial stability of the US farmer which could be impacting grain movement.  From now until our next Quarterly Stocks report when we get a clue about Q2 corn feed demand, these will be the drivers of price.  The February insurance pricing period is just 8-days away.

Headlines of note overnight included a rehash of yesterday’s news that Oil World had become the first major analyst to reduce the Argentine soybean production estimate.  They cut their guess by 1MMT to 52MMT vs. the USDA at 54MMT.  One respected analyst said the world can afford a 2-4MMT decline in SAM production as y/y production is currently forecast up 32MMT.  What we can’t afford is a 5MMT+ reduction.  That will require additional risk premium.  Palm oil in Malaysia advanced to the highest level in three weeks on speculation a rally in soybean oil will boost demand for the cheaper vegetable oil.  Also of note, Brazilian soybean basis continues to appreciate.  Feb slots continue to be no offer against +55H bid.  LH-Feb/FH-Mar is now +50/60H vs. +52/60H a week ago.  Full March slots are now +43/46H vs. +40/43H a week ago.  Most slots through July are up 2-3c w/w.  Corn basis did ease in the latest week in Paranagua and is now +10/25H for Jan, +10/25H for Feb vs. +15/35H a week ago.  Meal basis is firmer w/w by 2-8c.

Open interest changes yesterday included wheat down 3,000 contracts, corn up 5,320 contracts, beans up 8,330, meal up 4,310 and soy oil up 2,200.  Nice to see decent increases in open interest in corn and the soy complex on the rally yesterday.  Funds have definitely changed their tune and appear to be coming back in our space.  Chinese markets were mixed overnight with beans up 0.25c, meal up $3.20, soy oil down 6c, corn down 0.25c, palm up 26c and wheat up 0.25c.  Malaysian palm Oil was up 16 ringgit at 2,481.  Paris Milling wheat is down 0.40%, Rapeseed up 0.32%, corn down 0.31%, UK feed wheat down 0.35% and Canola is up 0.26%.  Calendar spreads are mostly weaker overnight.

Call things slightly better today, but don’t be surprised to see some two-sided trade as there isn’t a lot of fresh news today specifically to make this market really want to rally.  Today could see some consolidation after the rally, but corn needs to take out last week’s high of $7.35 in order to keep the post-crop report trend as up and the money flowing in.  Wheat will continue to be handicapped by a lack of export business and a lag until we start focusing on the crop breaking dormancy and conditions.

Trade as of 7:15

Corn steady/better

Soy up 1-2

Wheat up 1-2

 

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Did one already miss the boat for 2013 corn hedges?

Did one already miss the boat on 2013 corn hedges?

If the boat has already sailed what does one do now?  Meaning if we have seen our highs or prices chances what strategies might work to protect the still decent prices?

If the boat has yet to come; how will i know when it is about to sail?  In other words if we are going to have higher prices when will one know when to pull the trigger?



First off did one already miss the 2013 corn hedge spots...... it is should be known that the futures markets has so many unknown factors that I can't honestly say whether the ship has yet to sail or if we will have another chance at better higher price levels to make sales at.

My generic answer is that it should be difficult to see a major rally if you look at the fundamental picture or simple supply and demand.  Because the market likely focus on acres and trend line yields over the next several months.  Well that is fine and dandy if we have good demand; but it is not likely that corn demand pops up nearly as fast as supply could.  It has been difficult to curb demand; but it might me more difficult to get it back; unless we get it back via lower prices.

So we are left with a catch 22.....only simple way to improve demand is lower prices......

One of the commentaries i read today mentioned that if we have just middle 140 yields with middle 90 million acres that we have potentially the largest crop ever.  Well a large crops is great and helps demand; but i don't know that demand starts the second a farmer decides to harvest.  It could take some time for some of the industries to bulk demand up.  Plus what will happen with basis and producer bin room/ overall situation?  Things are not like the old days; not everything has to get sold.  So cheaper prices are great for demand; but if end users can't but stuff much cheaper that doesn't help demand.

I guess bottom line is we could paint an ugly price picture if we want to look just at the new crop supply and demand picture of today.

Now does that mean we won't have a chance at higher prices....no....not for sure anyways.

We still have a super bullish old crop situation and sometimes money flow and technical pictures can really out do price moves.

So where do i think things could go for Dec 2013 corn......i could paint a slightly bullish picture just on the seasonal trends that indicate it should rise slightly over the next several months.  Some planting scares and other weather scares could add some premium to the market.  The question is how much premium is already added into the market because of the present dry conditions?  That I don't know.


Bottom line is one could find lots of bullish arguments as well as bearish arguments; so that probably means just a little good old fashion risk management should be used.  Pick what level of sold or protection gets you comfortable.  For some that might be 10% sold or protected.  While for others it might be 50-60%; then find a way to get there.  Don't do it all in one shot; spread out the risk.

Write  yourself a pro-active marketing plan that tries to make sales incrementally as or when we bounce higher.  But include some exit dates so that you are getting something done.

For a good look at a 2013 market plan check out this link to Ed Usset's 2013 corn pre-harvest marketing plan.


2013 pre-harvest marketing plan for corn http://edsworld.wordpress.com/2013/01/16/2013-pre-harvest-marketing-plan-for-corn/




Now if you want to try and hit a home run; before making sales. Just wait until the minute when one gets bulled up and starts talking about new highs. Wait for that weather scare and talk of $10 or $12 corn; shortly around that point we should run out of buyers; it will be tough to sell but history will tells us that when we have no buyers as everyone has got super bulled up it might be time to take the other side before the ship flips over.




What strategies does one use today. I don't know if there is a great strategy; simple ones like buying puts or spreading sales out seem to make the most sense. But it really comes down to what makes you comfortable.




If we are going to have a real train wreck one might want to do some various what ifs and look at puts as an investment and then decide which ones make the most sense.




Some might feel comfortable selling some calls to pay for some puts but others might not want to touch that because another repeat or worse production then last year could be argued fairly easily right now given the conditions and lack of sub-soil most face today.




At the end of the day it seems like many have always had reasons why our grain prices could go up or could go down; but this year this time those possibilities seem to be even more extreme. Almost scary with all of the unknown factors that are out there today.




Our equities going to continue to run higher and will that lead to money flowing in to the grains and inflation or risk on type of buying by the funds?




Will we have a set back or a fiscal cliff that leads to risk of or massive fund selling?




What type of yield estimate range could one realistically see this year? If we are in much worse shape then a year ago are yields under 120 a bushel possible for corn? In my opinion with out a doubt. But on the other side of things that past couple of years have seen yields start out in the 160 or so range; with some estimates as high as 170. So do we have a range of nearly 50 bushels as possible? Yes without a doubt




50 bushels on 100 million acres if 5 billion bushels; that's a heck of a lot corn that we need to find a home for should we produce that much; but also a heck of a lot of corn demand to potentially curb especially with the tight starting situation.




Now if i was smart enough to know which curve ball mother nature was going to throw us I would put my money where my mouth is. But I am not; so I am not going to advise anyone to do anything other then practice good solid diversified risk management.




Have fun!

Closing Comments

Markets closed mixed yet very disappointing today despite friendly outside markets and a very strong opening last night.

With everything was said and done corn was up a penny, beans closed up 23, KC wheat got hammered down 13 cents a bushel, MPLS wheat was off a dime a bushel, SRW (CBOT) wheat was off 12, equities bounced with the DOW up 63 points, crude up about 60 cents a bushel, and the dollar was lower.

Grains started off very strong last night from weather in South America and talk of Russia removing their import duty on wheat.  After the pits opened I seen a couple wires indicating that Russia would not remove any import duties and that along with all the export business over the weekend that the US didn’t participate in seemed to weight on the wheat market.  Also to note is some of the areas didn’t get hit quiet as hard with the cold snap.

Wheat charts took a step back today.  As most left reversals on the charts; some key reversals as wheat made new highs for the move and then closed below Friday’s lows on some of the charts.  So outside bearish reversal days……….yuck.

South American weather helped the soybean market out today.  Finally getting that weather scare; but I don’t know that it will really materialize to enough damage.  I guess that remains to be seen; so far things have been ideal but the recent weather in some parts and the 10 day forecast in parts of Argentina have caused some to think that perhaps there is some downside to the big production number. 

Basis felt rather weak today for wheat as mills seem to be plugged.  I have said for some time that we really need some export business and that remains very true.  We simply have plenty of wheat for the demand that we have.  Yes it is very dry and production can come down but it might not matter if we don’t find some demand.  I read something today that indicated that the average ND farmer still has 60% or so of this last years wheat crop to market.  That simply isn’t bullish.

The other thing we have to keep in mind before getting too bullish wheat from the drought is what will wheat do if we plant a huge corn crop with normal or above normal yields?  I don’t think we can have 10.00 wheat if we have 3.00 or 4.00 corn. 

So wheat might be a little pickle.  As we need to find demand; which doesn’t seem to be happening.  So the real story is probably new crop; but when can the new crop story really hit?  About the time when the market will really be focusing on corn getting planted and conditions. 

Bottom line is I think everyone knows of lots of bullish arguments; but most of them center around dry weather.  We need to be prepared if we don’t see that happen; as if we have any corn crop at all we will need to find a lot of demand in a hurry or the downside potential is scary.  So recommendation of using good risk management is still the present thoughts.  If you need help please give us a call.

The birdseed market seems to have a little interest; but overall rather quiet.  I would have thought I would have had more calls from buyers today with the strength beans had. 

On the bean market; if we could get some more spot business we could make things very interesting and get things very tight in a hurry.  But more than likely a weather scare rally will turn out to be a fear rally and thus a rally that should be sold.

Jeremey Frost

Grain Merchandiser

Afternoon Recap 1-22-2013 from CHS Hedging's Tregg Cronin

Financials

Outside Markets as of 1:15: Dollar Index down 0.166 at 79.867; NYMEX-WTI up $0.54 at $96.10; Brent Crude up $0.61 at $112.34; Heating Oil up $0.0230 at $3.0746; Livestock prices are all firmer today; The softs are getting crushed today with coffee down 4.59%, cocoa down 2.71% and Sugar off 1.09%; Cotton is up 1.65%; Gold up $6.60 at $1693.60; Copper up $0.0260 at $3.7050; S&P’s up 5.50 at 1484.50, Dow futures are up 59.00 at 13,635.00 and Treasuries are firmer.

Despite the fact the main economic data point today of existing home sales missed rather badly, equities seemed to shrug it off with most analysts on CNBC claiming new record highs will be seen in the S&P 500 and DJIA this year.  Existing home sales were 4.94 million units, below the consensus guess of 5.1 million.  Partially to blame, however, is the supply of homes which is at 4.4 months vs. 4.8 months in November and 6.4 months in December 2011.  The Richmond Fed Manufacturing Index also missed big coming in at -12 vs. the consensus of +5.  The January manufacturing reports from one end of the country to the other were decidedly poor.  Crude oil is trading at the highest level since September 19^th with speculators jumping on the long side big in recent weeks.

---

Corn

Firm trade out of the gate last night, but turning more two-sided during the day session.  A higher close was performed thanks in large part to rallying soybeans as there weren’t any bullish developments since Friday.  US corn is still being undersold by South America, and with last week’s ethanol production report dropping to the lowest on record going back to June 2010, we’re really counting on feed demand propping up this market.  Farmer engagement was lightened up, and probably doesn’t uptick until we close in on $7.40-7.50 which pays $7.25-7.75 cash from one end of the belt to the other.  Trouble is, basis isn’t as firm as it was 2-weeks ago, and spreads have been under pressure.  We might be counting on paper demand to push us up to and above $7.50 if that’s where we’re going.

Breaking headlines were somewhat sparse.  Safras released their latest Brazilian corn production estimate, pegging the crop at 70.7MMT, down from 72.7MMT last season and vs. the USDA at 71.0MMT.  No one has had much to complain about in Brazilian growing regions.  Brazil’s vessel lineup to load corn remains large at 2.811MMT, down slightly from a week ago at 2.994MMT.  This should ease in the next 30-45 days as soybean harvest ramps up and they fight for elevations.  Nothing overly remarkable in the Commitments of Traders data as funds bought around 12,000 contracts to push their net long to 62,372 contracts.  End users sold around the same amount.  This was the first week of net buying by the funds since December 4^th.  A push towards $8.00 is going to take the large spec trader to get off the sideline and add to his position significantly.  Lots of farmers waiting for a “6” to be put on December ’13 corn.  Would be a good place to start hedging inputs if a producer is sitting at 0% sold for new crop.  Export inspections were 11.0mbu, above last week’s 9.6mbu but well below the 20.7mbu needed weekly to hit the USDA’s export forecast.

CIF Corn markets weakened up during the session today with spot bids falling 4c to +52H for Jan and down 2c to +56H for Feb.  Nearby Illinois River basis is 4.1c below delivery equivalence while Feb is at DVE and March is above by 5.4c.  Weakness in the CH/CK could continue into the index fund roll  the first five business days of February before firming.  Continue to look for -3.00c to bullspread if basis is going to remain under pressure.  Not much change to rail basis this morning with Group-3 rail at +14/17H, and PNW shuttles worth something around +110/112H bid.  Ethanol seems to be holding its own with plants in the WCB somewhere around -5H to option the H.  The CN/CZ was up 1.75c to +132.75c late after hitting +134.25c earlier.  Remains just below the January 16^th high.

---

Wheat

Firmer overnight with corn and soybeans, but weakening steadily into the day session open and accelerating losses mid-morning.  Most analysts were looking around for a reason behind the selloff, but one look at the weekend tender business should have illustrated it just fine.  There was a lot of wheat business conducted over the weekend, and the US participated in almost none of it.  Bulls seem impatient the market doesn’t want to trade the dryness to date in the southern plains and a dry forecast.  We will in due time, but not until we break dormancy.  Until then, the lackluster export business is weighing.  Export inspections of 21.9mbu were much better than last week’s 10.7mbu, but still short of the 24.7mbu needed, and we’ve only got 19 weeks left in the marketing year to ship 488mbu.

The bullish input of Russia removing their import duty on wheat of 5% seems less likely today than last week.  Russian officials said they aren’t ready to support such a policy, even if domestic wheat prices are rallying sharply there.  Most think they’d only need to import 100-200,000MT, which wouldn’t materially change world export/import grids.  Australia and Canada mopped up the milling wheat business over the weekend, and Canada’s exports YTD are running at 8.18MMT vs. 7.0MMT on the 5-yr average.  Contrary to popular believe, however, it wouldn’t appear there is more Canadian wheat moving south to the US than normal.  We just really don’t have an export program and therefore have plenty of wheat to cover domestic needs.  The average spring wheat farmer is thought to still be sitting on 60-70% of his crop, a tremendous amount to move ahead of next year’s harvest, especially if it decides to move all at once.  Farmers seem to want $9.00 futures.

The Commitments of Traders Data offered some interesting observations as pointed out in the email sent earlier.  Commercial Gross Longs (end users) continue to gobble up Chicago Wheat, pushing their position to a new record.  This while the funds are still short.  Maybe futures do have more upside to go, but wouldn’t want to be long basis or spreads if we do, because they should get sloppy.

KC protein scales didn’t change with 12.0% at +87/102H.  Gulf values were mixed, but bids were 2-5c firmer with spot SRW barges at +68/78H and Feb boats at +74/80H.  HRW was unchanged at +116/122H.  Really odd how HRW exports have been really sub-par this year, but HRW basis has maintained numbers well over +100, and even well above +110 at times.  How basis continues to be propped up despite no demand is truly interesting.  Wheat calendar spreads were uniformly weaker with the MWH/MWK inching out 0.25c to -11.50c.  There was a fair amount of trade at -12.00c, and it should continue to get weaker.  Lots of wheat around, so-so basis levels, new vomo specs, new storage rates, no desire to own the wheat and heavy deliveries against the Dec which could be re-delivered.

---

Soybeans

Sharply better from the get-go last night, and the main cause for the strength in the Ag room.  South American weather over the weekend seemed to be the catalyst as were forecasts for mainly dry weather in Argentina the next 10-days.  This prompted renowned oilseed analyst Oil World to cut their Argentine soybean production estimate, the first major firm to do so.  Combined with mounting vessel lineups in Brazil, and a rain delayed harvest, and we had plenty of reason to buy the board.  Funds having pared their positions to the smallest levels in nearly a year also allowed that group plenty of room to buy.  Technicals are flipping over to the bull side as well, drawing trend followers off the sideline.  $15.00 looks like the next logical target and probably where this market is headed.

Export inspections were strong this week at 48.1mbu vs. 41.3mbu last week and the 13.5mbu needed weekly to hit the USDA’s export forecast.  Shipments to date are up 34.3% over last year at this time.  Aside from a small chance Friday, midday weather maps didn’t have much for precip in the concern areas of Argentina.  Below are the 6-10 day maps of both the GFS and European model.  Neither one holds much promise through February 1^st, but note the fairly substantial rainfall in N-Brazil where harvest is taking place.  The vessel to load soybeans is now 770,108MT, or 14 boats.  In addition, there are 12 boats to load meal and 16 to load soy pellets.  Brazilian basis levels were 2c weaker today with Feb at +62H and Mar at +58/70H today, but these have been trending firmer as of late.  Logistics and weather will be the keys to US swing business Mar 1 forward.  Oil World cut their estimate of Argy bean production 1MMT to 52MMT.  The USDA is currently estimating that crop at 54MMT.  Agroconsult sees Brazilian bean crop at 83.95MMT, unchanged.

CIF bids were on the defensive again today with spot barges at +96H, down 4c from Friday while Feb barges were unchanged at +83H.  Illinois River basis is 35c over delivery for Jan, 6.9c under for Feb and back to 15.1c above for March.  The wide disparity month to month is probably behind the SH/SK weakness which fell 0.75c to +11.75c today and is down from +17.50c 2-days ago.  Oct and Nov saw decent trading volume today with October seeing close to 1mbu today alone.  Some think this is Sinograin buying the back end of the inverse for strategic reserves.  PNW shuttles are +160/165H, unchanged.  There were 120,000MT of optional origin soybeans sold to China for 13/14 delivery this morning.  Crushers looked steady today with Mankato +4H nearby.

---

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Overnight Highlight's 1-22-13 from CHS Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.175 at 79.861; NYMEX-WTI down $0.07 at $95.44; Brent Crude up $0.34 at $112.06; Heating Oil up $0.0298 at $3.0823; Gold up $2.50 at $1689.40; Copper up $0.0035 at $3.6830; Coffee and Cocoa are getting beat up this morning; S&P’s are down 1.50 at 1477.50, Dow futures are down 18.00 at 13,557.00 and Treasuries are modestly weaker.

Equities have turned mostly lower overnight after the supportive news out of the Bank of Japan last night seems mostly priced in already.  The Bank has moved to an open-ended monetary easing policy, targeting a 2% inflation target.  The reason equities aren’t rallying and the reason the Yen is higher not lower is because the language said they may not add additional stimulus.  The JPYUSD is down 1.128% and the JPYEUR is off 0.911%.  German ZEW investor confidence rating rose to 31.5, the highest in 2 ½ year. Israeli president Benjamin Netanyahu looks like he is heading for a 3^rd term.  CME Group was raised to hold vs. sell at Berenberg.  Commodities as an asset class rose to the highest level in three-months as tracked by the S&P GSCI Index of 24 raw materials.

Light snow across the upper-Midwest over the weekend, but limited to 0.10-0.25” of moisture.  Bitter cold is obviously the subject of the weekend weather, but the most severe temps don’t look to be impacting any major wheat production areas, at least none that are totally exposed.  Temps look to warm up by mid-week and be in the 20’s for the Upper by the weekend.  5-day forecasted precip shows some noticeable amounts along the OH-River, but nothing for the WCB.  Extended maps look more favorable for precip in the corn belt, but the southern plains wheat areas remain dry the next 15-days.  Precip was limited and called disappointing for dry areas of Argy over the weekend.  The next 10-days will see a continuation of the dry pattern there with the only rainfall seen Thur/Fri with totals under 0.30” on 60% of the belt.  Next best chance is in the 11-15, but confidence is low.  Temps don’t look overly threatening.  Brazil looks like it is in good shape, although there are concerns in S-Brazil, mainly Rio Grande Do Sul.  Not a problem, but noteworthy.

Sharply better out of the gate last night and extending rallies this morning in all of the major Ag markets, but the strength is undoubtedly in the soy complex.  Disappointing weekend rainfall in SAM as well as so –so forecasts for improvement are lighting the fire, and obviously the pared back positions by the funds in most of these Ag markets is leaving room for them to run.  Speculators did add around 4.3% to their total commodity positions which now stand at 682,521 contracts, the largest gain since November 27^th.  The other glaring thing this morning is the amount of wheat business conducted over the weekend, yet the US had almost no participation in any of it.  Most of the newswires are focusing on the dry US plains, not the poor old crop demand.  Up on one, down on the other.

Japan issued a tender overnight for 118,787MT of US, Canadian and Australian wheat for Mar-Apr.  Bangladesh bought 50,000MT of optional origin wheat at $332.48/MT C&F for Feb/Mar shipment.  This wouldn’t have been US.  South Korea’s NOFI bought 60,000MT of wheat in a private deal at $322.50/MT C&F from either SAM or India.  Tunisia bought 50,000MT of milling wheat and 75,000MT of durum, said to be European origin although US-SRW might have been competitive.  UAE bought 20,000MT of Aussie wheat at $389/MT C&F.  Kuwait bought 22,000MT of Canadian wheat at $399.50/MT C&F and 40,000MT of SAM corn at $327.50/MT C&F.  A day after saying they could lift their import tax on wheat, Russian officials said they aren’t ready to lift the 5% import duty.  Import totals would only be around 100,000MT some have estimated.  YTD Canadian wheat imports total 8.18MMT vs. the 5-yr average of 7.06MMT.  See chart below.  Chinese corn imports in December were 265,877MT vs. 384,234MT on November and 569,908MT a year ago.  Sinograin, the state reserve manager in China, procured 37.47MMT of grain in 2012 under orders from the government.  JP Morgan cut its forecast for soybean prices, citing SAM crops.  Soybeans will average $13.90 in 2013, peaking at $15 in Q1.

Open interest changes Friday included wheat up 2,150 contracts, corn up 5,200, beans up 4,040, meal up 5,840 and soy oil down 1,900.  Volume was moderate in almost everything.  Chinese markets were mostly firmer overnight with the exception of the grains.  Beans overnight were up 0.25c (13c since Friday), meal up $2.20 ($3.30), soy oil up 16c (89c), corn down 1.25c (-2.50c), palm up 29c (64c) and wheat down 7.50c (-13.50c).  Malaysian Palm Oil was up 45 ringgit to 2,465, and is up 65 on the week.  Paris Milling Wheat is up 0.50%, Rapeseed up 1.02%, Corn up 0.10%, UK feed wheat 1.25% and Canola is up 1.10%.  The Italian Durum contract had its first day of trading with 30 contracts of volume.  It closed at €299/MT, or $10.82/bu vs. the US DTN National Durum Index at $7.82/bu.

Call things better to get going today as we still don’t know what kind of shape the SAM crops are in, even though anyone claiming a disaster is most likely reaching a bit.  Still the big fund shorts in soy oil and Chicago wheat will underpin, and corn stocks are still at near-record lows, or are projected to be anyway.  Short-term trends are up, and that’s the only way to play these markets until we stall at an overhead level of resistance or farmer selling opens up which has been notable absent.

Trade as of 7:15

Corn up 2-5

Soy up 15-18

Wheat up 3-5

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Closing Grain Market Comments 1-17-2013

Markets closed weaker for the grain markets today; despite supportive outside markets, and decent to good export sales. 

When everything was said and done corn was down 6-7 cents, beans were off 6, KC wheat was down 5-6, MPLS off 2, CBOT wheat off 4, equities bounced with the DOW up 85 points as the S & P got to it’s highest levels since December of 2011, the dollar is near unchanged, crude made 4 month highs up over a dollar.

Very disappointing is how I would characterize today’s price action.   For the first time in a long time we had export sales hit what they need on a per week basis to hit USDA estimate for all three of the major grains and we had a risk on type of outside markets.  The export sales helped our markets push higher when they came out; but we couldn’t manage the strength.  Keep in mind that corn had 7-8 up days in a row before today; so our markets were a little overdone.  But still it is disappointing anytime you see good news and can’t trade higher.  Soybean sales were as high as they have been all year; yes the biggest export sales week we have had all marketing year; so another disappointment that we didn’t close firmer.

Looking deeper into the export sales and you do find info that maybe helps explain the sell off.   First off the export numbers are for business done last week and even though they where good it isn’t like the corn and wheat numbers where off of the charts.  The business was announced last week so the sales good where not well above expectations.  One other thing to look at is the fact that last week was a big USDA report week; now we stress to producers to take risk off the table ahead of major events like that so it only makes sense that buyers or end users did the same thing.

The real negative for export sales has to be the HRW sales; the SRW sales which would be CBOT wheat where great; but actual hard red winter wheat like what is grown around here were still horrible only about 1/5 of what we need on a per week basis to hit present USDA export projections.  So the one that we really need the demand for still is missing the demand.

Speaking of demand yesterdays news mentioned a couple of ethanol plants in NE shutting down until market conditions improved.  Yesterday’s ethanol production numbers were also reported to be the lowest since 2010.  So I think the past day or two we have seen a little shift in the headlines from a tight balance sheet that might get tighter to focus on the rather poor margins for the ethanol plants.  One commentary that I listened to today said that as many as ½ of Iowa’s 41 ethanol plants could be idol by July.  That sounds like a little too much demand getting curbed.

One positive I had for the ethanol industry is the fact that today I had an ethanol plant looking for a little April – May corn.  I don’t think he cared for the levels I would be a seller at but at least he is looking.  We also know from history that if they run most plants run 100% because they just have way to many issues if they try and run ½ speed. 

Bottom line is we really need to watch what the ethanol plants do or don’t do and how the headlines effect what the funds decide to do.  I think presently one could argue that ethanol usage pegged by the USDA to be fairly accurate; with potential to use more or curb way too much should some start shutting down.

Last thing on corn to watch is what the ethanol markets due to basis.  Meaning that corn basis has both tremendous upside but also tremendous downside risk.  We are simply seeing lots of corn usage shifts happening.  As plenty of corn is not going to the same end user destinations as it has in the past and that comes from the regions that had poor crops as well as the regions that had better then expected or better than the past couple years crops.  It should and likely will cause huge swings in basis as buyers go into a different area to pull corn causing that area to see basis on fire; but then coverage happens or demand slows and that could cause basis to go under heavy pressure. 

The wheat market to me feels heavy; yet wheat also feels like it has the most potential.  I just don’t think that the wheat market can realize much if any potential until demand hits us.  Export demand for HRW in particular; that is the wheat that we have the supply issue with for next year and that is the wheat that we need to sell over the next several months if we want to see a bullish wheat market.  (In my opinion)

Exports are far more important for wheat then they are for corn.  We export 10-20% or less of our corn in a given year; while it is some place closer to 30-60% getting exported.  So fundamentally exports are much more important for wheat and that means that export headlines or lack there of probably have even more effect on what the funds do.

Technically our markets look much better than they did just a week or so ago.  But we are also overdone in some markets and we have neared resistance levels.  The next few days should help us determine if we are still in markets where the rallies should be sold or if we are turning the stage to markets where the funds and end users will buy the dips.

I believe INFORMA will update new crop acre numbers tomorrow; so watch out for that.  Most likely they will not be printing very bullish numbers; but rather them and most of the market will start off talking big acres with big yields.  Realistic or not.

Please give us a call if there is anything we can do for you.

Jeremey Frost

Grain Merchandiser

Midwest Cooperatives

Mock commodity trades from this week's MWC Marketing Hour Round Table

Below are the mock trades that we placed in this week's MWC Marketing Hour Round Table.

Option Trades

Jordan sold the May 7.80 and 7.50 corn calls.  His risk is to double the premium he received.

Jeremey - purchased 5 of the 7.80 Feb CBOT wheat puts and paid for them via selling 1 of the 8.00 July Wheat calls; basically gives him nearby protection for potentially having a sale very close to the market for new crop.

Futures Trades

Kevin, Jordan, and Dan all sold March corn.  Kevin had a risk of 9 cents, Jordan a risk of 7 cents with an objective of 31 cents, and Dan risked 8 cents with an objective of 16 cents.

Dan also sold 1 KC March wheat risking 10 cents with an objective of 42 cents.

All the futures trades where done basis the close of 1-16-2013.

The other two trades put on where bear spreads in the corn market.  Jeremey sold the March corn and bought the Dec corn; with an order to add 1 more at 1.50 inverse; risking to 1.65 with an objective of 1.00.

While Jordan sold the July corn and bought the Dec corn; risking to 1.60 inverse with an 80 cent profit objective.

As always remember that futures and options are risky and not suitable for many.

Afternoon Recap from CHS Hedging's Tregg Cronin

Moore Research 5/15/30 year Seasonals for Chicago Wheat, Corn and Soybeans attached.  Generally firm for corn and beans, but soft for wheat.

Financials

Outside Markets as of 1:15 Dollar Index up 0.022 at 79.801; NYMEX-WTI up $0.64 at $93.92; Brent Crude down $0.22 at $109.40; Heating Oil down $0.0223 at $2.9888; Livestock markets are sharply lower, led by cattle; Gold down $2.30 at $1681.60; Copper down $0.0250 at $3.6125; Silver down $0.014 at $31.515;  S&P’s up 2.50 at 1467.75, Dow futures down 11.00 at 13,452.00 and Treasuries are firmer.

Biggest financial market news today had to be earnings released from Goldman Sachs and JP Morgan as well as word two Japanese airlines were grounding all of the Boeing 787 Dreamliners in their fleet due to complications with the airplanes’ batteries.  Q4 income at Goldman surged to $2.89 billion from $1.01 billion a year earlier.  Earnings per share were $5.60, well above the $3.66/share estimate.  JP Morgan earnings rose to $1.39/share from about $0.90/share a year earlier.  The real news, however, was CEO Jamie Dimon’s pay was halved over the “London Whale” trading incident as internal controls get beefed up.  Economic data including the Consumer Price Index came in below expectations, supporting the Federal Reserve’s current policy initiatives.

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Corn

Firm trade overnight in what looked to be the eighth winning session in a row, but poor ethanol data and reports two more plants in Nebraska were planning to shut down at least temporarily took corn into negative territory.  The severe bullspreading of the last week ran its course temporarily as traders booked profits, sending new crop months positive on the close.  A late rally closed everything green.  The conversation has shifted from how bad exports are, to how we need to slow down feed use.  Yet, if ethanol production levels off at a sub-800,000bbls/day pace, there will be enough corn around domestically.  Farm gate movement slowed considerably today vs. yesterday.  $7.50-7.60 futures seems like the target needed to pry loose cash from one edge of the corn belt to the other.

The big data point today was weekly ethanol production which came in at 784,000bbls/day, down 42,000bbls from last week and the lowest week on the data set’s records going back to June of 2010.  Making matters worse was a jump in ethanol stocks to 20.3 million barrels, up 507,000 on the week to the second highest level in 29-weeks.  This likely means domestic demand for US ethanol continues to decline, but so did imports to 8 million gallons vs. 15 million the previous week and 14 million on the 4-week average.  Gasoline demand was above a year ago, but towards the lower end of the 5-year range.  Preceding the release of this data by a mere 10-minutes was news from Bloomberg Abengoa planned to temporarily idle two of its ethanol plants in Nebraska; one in York and one in Ravenna.  Ethanol margins remain poor, near 4-yr lows, and the high basis levels needed to source corn from the farm isn’t helping.  There are three boats in the Brazilian lineup to load corn bound for the US.  The total lineup equals 2.814MMT vs. 2.425MMT LW.

CIF bids were unchanged today with Jan bids at +50H and Feb at +61H.  Illinois River basis is sitting right at delivery equivalence to 3-4c above for Feb/Mar.  If futures continue to rally, I’d like to wait on the CH/CK weakening to around -2.00c/-3.00c before bullspreading or moving short hedges.  If the rally stalls, however, basis is clearing saying the spread should go back to an inversion.  The index fund roll begins the first full week of February.  PNW shuttle bids were unchanged today at +108/110/113H and Grp 3 at +15/18H.  Hereford is still said to be an +88H to +92H type of market, although some say +95/100H is what is required to buy a shuttle of corn dlvd Hereford.  Didn’t see much change from the ethanol plant.  Export sales tomorrow are expected weak at 100-450,000MT vs. 12,622MT LW. 

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Wheat

Two-sided trade, but managed a recovery late along with corn and rallying beans to post the fourth higher close in wheat.  Once again seemed to be little in the way of news aside from the cold weather threat next week to almost all growing regions of the US.  Dryness will also persist in the southern plains the next 15-days, but again, it seems a bit early to be killing this crop completely when we haven’t broken dormancy yet.  Farmer movement slowed from yesterday, but was still mentionable.  Country merchandisers say $8.90-9.00 pays $8.50 and gets the farmers’ attention.  Several elevators have also been building length over the last 30-days, and have wheat to move.  If the board continues firmer, hard to be friendly on spreads or basis, especially in Minneapolis.

Wasn’t of anything for wheat news, although noteworthy the last few days have seen open interest declines, hinting the large spec is short-covering.  With the estimated large spec net short around 60,000 contracts, there could be sizable buying left to do should he decide to run it out completely.  The pace of demand remains lackluster, however, and many are making note of the fact the pace of exports needed each week through May has never been done before.  Temps are beginning to moderate in the 6-10, with above normal temps in the plains.  Dryness will prevail, however.  There was chatter in the market today about wheat from Duluth trading into TX-feedlots, although if it did in fact happen, it likely was a one-off trade with a ton of garbage wheat as no spreads or basis can seemingly put regular HRS into Texas feed rations.  Japan will announce tender results tonight followed by export sales tomorrow morning.  Shouldn’t be anything to write home about, and makes the current 1,050mbu export forecast all the more daunting.

Spot floor basis was mixed today with 14.0% called up 5c to +75/90H while 15.0% was down 20c to +70/125H.  Should be pointed out there were only 10 cars on the floor which traded today.  KCBT protein scales were unchanged.  To-arrive bids were unchanged at +60/65H after dropping 5-10c yesterday.  Can’t hit home enough the fact that basis never really strengthened while futures dropped $1.00+, meaning we have plenty of wheat around to satisfy any and all domestic demand, and we don’t have an export program.  This in addition to the fact more than one market pundit has suggested larger swaths of Canadian wheat probably trickling over the border.  The MWH/MWK fought back from -11.25c to trade at -10.00c late, but still can’t give my blessing to bullspread just yet given the new vomo specs, increased carrying charges and the large amount of wheat which still acts like it wants to move.  Be patient on rolling length forward, although wouldn’t hold my breath on basis appreciation the next 30-days either.  +100/105H PNW for HRS.

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Soybeans

Another impressive rally in the soy complex today, reversing yesterday’s losses and some with front month March soybeans closing up $0.23.  March beans now find themselves sandwiched between the 50 & 200-day moving averages, but have yet to climb above significant overhead resistance.  The cause for the support would appear to be South American weather, namely Argentina, Chinese interest in spot business, rumors of strategic reserve buying for new crop ’13, and firming basis levels at Brazil’s main ports.  Not many sounding the alarm bells over current SAM weather, but the forecast maps just don’t look that inviting through the end of January.  A change in the pattern for February will need to be in order or additional risk premium will be needed.

FOB basis levels at Paranagua Brazil have appreciated over the last week.  LH-Feb/FH-Mar can be called +60H vs. +50H a week ago.  Full March slots are seen at +43H vs. +35H a week ago.  The Brazilian concern would appear to be rain delays in N-Brazil for harvest, and there are said to be around 15-20 vessels waiting to load beans, meal or meal pellets.  Also speaks to the Chinese interest on the front end.  Also worth noting, prices on the Dalian exchange have watched meal climb $17.00/tonne since Friday while CBOT meal has risen only $10.00.  Conversely, Dalian beans are up 18c since Friday while CBOT beans are up 63c.  Their crush margins continue to improve and should be at some pretty spiffy levels.

CIF bids were mixed today with spot bids unchanged at +105H through Jan, but down 2c to +85H for Feb and down 2c to +73H for March.  One can compare these with the values for Brazil in the previous paragraph.  New crop values Nov-forward were up 1-3c with +75/80X saleable.  PNW values softened by 2-3c today with most posted bids around +160/163H, but +165/167 is probably still saleable to the right party.  Crush bids so far this afternoon look unchanged with Minnesota crush plants posting somewhere between +2/10H.  Spreads remain strong and look like a little bit of export business and lack of farm gate movement based on anemic barge freight around 340% on the Illinois.  The SN/SX jumped 6.75c to +116.25c, a clear sign of concern towards summer carryout.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons