Overnight Highlights from CHS Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.125 at 80.619; NYMEX-WTI down $0.54 at $92.55; Brent Crude down $0.45 at $110.86; Heating Oil down $0.0027 at $3.0150; Gold is up $7.30 at $1656.20; Copper down $0.0275 at $3.6655; Silver up $0.279 at $30.230; S&P futures down 1.00 at 1456.75, Dow futures down 11.00 at 13,336.00 and Treasuries are firmer.

Nothing to see in financial markets this morning with a mixed Asia, lower Europe and quiet US.  Borrowing costs in Europe remain near recent lows, which would be the lowest 10-yr yields since the spring of 2011.  There seems to be some chatter about the European Central Bank cutting rates further at their next meeting, which coincides with the euro trading to the lowest level in 3-weeks.  JP Morgan cut the stock of Archer Daniels Midland (ADM) to underweight this morning, most likely due to their so far failed bid at buying Aussie grain handler GrainCorp.  Q4 Earnings Season gets underway later this week.  There isn’t anything on the economic calendar today.

Very limited moisture over the weekend with the exception of E-TX.  The 5-day forecasted precip map is once again putting moisture in the E-TX to MI path with Gulf Coast states looking to see as much as 3.9” of moisture.  The WCB should once again be limited, but OK and parts of TX-wheat country could see more rain.  The main HRW areas will be missed.  NOAA extended maps look like we could have some winter weather brewing.  Below normal temps move in the WCB and Rockies, while most of the Midwest is “expected” to see above normal precip.  Could be blizzard conditions. http://www.cpc.ncep.noaa.gov/products/predictions/610day/index.php  South American weather is attached.  Have to see their weather as a negative price input based on this morning’s run.

Mostly better trade overnight, and especially once 7:00pm hit and Asia got open.  The overnight newswires seem to be writing this off as a pre-report, short-covering bounce and that could be a lot of it.  Net length has been cut quite steadily in most of the Ag commodities, and as Bloomberg pointed out this morning, speculators increased their bullish commodity wagers for the first time since November.  That would be all commodities, not just Ag.  Point would be maybe the liquidation event tied to year-end, the fiscal cliff, etc. has run its course for now.  With arguably the biggest USDA report of the year on tap this week, it would seem wise to turn a bit more two-sided.  World grain prices are mostly firmer this morning as well.

Wasn’t much for tender news over the weekend.  Several wheat tenders are open, but nothing decided yet on Iraq.  Bloomberg news released a survey of Argy and Brazil production this morning.  Of the 22 analysts surveyed, the average on Argy corn is 25.9MMT (USDA at 27MMT), beans at 54.6MMT (USDA at 55), Brazilian corn at 70.4MMT (USDA at 70) and Brazilian beans at 81.9MMT (USDA at 81.0).  They also released a survey for Friday’s numbers in the US which I’ll push out a little later.  On average, most analysts are looking for slightly larger corn and bean yields, lower corn and bean harvested acres and slightly smaller carryout projections for corn and wheat, 5mbu larger on beans.  Malaysian Palm Oil stocks are being forecast near a record 2.53MMT at the end of December vs. 2.56MMT at the end of November.  A Chinese newspaper quoting a government official in the Rural Work department said China would continue importing corn and soybeans to satisfy domestic demand in the next few decades.

Open interest changes Friday included wheat up 5,020 contracts, corn down 180, beans down 170, meal up 3,520 and soy oil down 2,440.  To see that kind of open interest change with the price action we did on Friday, would seem to suggest ownership changing hands and end users stepping up.  COT data from Friday showed more managed fund selling in every Ag market.  Index funds did almost nothing through Tuesday, but next week’s report could shine light on the late week price action.  Chinese markets were firmer with beans up 4.75c, meal up $1.70, soy oil down 9c, corn up 0.25c, palm down 16c and wheat up 10.50c.  Paris Milling Wheat is up 0.10%, Rapeseed up 0.50%, Paris Corn down 0.11%, UK feed wheat up 0.24% and Canola is up 0.55%.

Let’s call things better to start as last week probably overdid it to the downside, especially as we head into the Jan reports.  Open interest changes would imply end users are stepping in more noticeably, and basis levels are definitely firming across the corn belt as farm gate movement is non-existent.  Basis and spreads might have to do some heavy lifting to get grain to move, so a friendly bias at current futures levels is warranted.  Attached is a chart of Australian wheat futures vs Chicago (Yellow) and KC (Green).  There are a couple articles below on extreme weather in China and Australia worth reading.

Trade as of 7:15

Corn up 1-3

Soy up 5-8

Wheat 1-4

China’s Coldest Winter in 28 Years Hurts Wheat Crop, Center Says
The coldest winter in 28 years in China, the world’s largest wheat producer, may hamper the developing winter crop, according the official China National Grain and Oils Information Center.
Southern China will be hit by a new cold front this week, with temperatures dropping to as low as minus 5 degrees Celsius (23 degrees Fahrenheit) on Jan. 11 and 12, the China Meteorological Administration said in a statement today. Guizhou and Hunan provinces may experience snowstorms, it said.
Widespread snowfall and lower temperatures since Jan. 2 have affected crops in southern growing regions and along the Huai River, CNGOIC said in an e-mailed report, without giving an estimate on crop damage. Winter wheat usually accounts for about 90 percent of the country’s output, according to Ma Wenfeng, a grains analyst at Beijing Orient Agribusiness Consultant Ltd.
“So far the general growing condition in the winter-wheat areas remains good and snowfalls are usually beneficial for wheat,” Masaid by phone today. “But a drought coupled with low temperatures will hamper growth.”
Two people died and 770,000 people have been affected by record-low temperatures and snow in Inner Mongolia in northern China, Xinhua said yesterday, citing the local government. More than 260,000 people are in need of emergency aid and about 180,000 head of livestock have died, according to the report.
Wheat futures traded in Zhengzhou gained 0.8 percent to 2,592 yuan ($416) a metric ton at 2:24 p.m. in Shanghai, and jumped 13 percent in 2012. The grain in Chicago rose 0.8 percent to $7.53 a bushel after climbing 19 percent last year.
“Last year China by and large had a pretty good wheat harvest as we estimated output of 117 million tons,” Ma said, adding that government data showed a record 120 million tons.
China will produce 120.6 million tons in the 2012-2013 season, the U.S. Department of Agriculture estimated in December.
To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net
To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net


Wildfires Force 3,000 From Homes in Australian Heatwave
Australia’s island state of Tasmania is struggling to contain wildfires that destroyed 100 properties and forced more than 3,000 people from their homes as areas of the mainland brace for catastrophic conditions due tomorrow.
The government is sending financial aid and extra firefighters to Tasmania amid concerns people may have died in the blazes. Prime Minister Julia Gillard, who surveyed the damage today, said the government plans grants of as much as A$8,875 ($9,301) to help people in fire-stricken communities cover living expenses and find new homes.
The wildfires in Tasmania, an island the size of West Virginia about 240 kilometers (150 miles) off Australia’s southeast coast, forced residents and tourists to seek refuge on boats and beaches. Fires are also burning in New South Wales, Victoria and South Australia states amid the most wide-ranging heatwave in a decade, with Sydney forecast to reach 43 degrees Celsius (109 degrees Fahrenheit) tomorrow.
“This is the time to be vigilant and I do particularly want to pass that message on to the people of New South Wales as the temperature gauge starts to rise,” Gillard told reporters in Hobart. Authorities said most of the 100 people, including tourists, that were missing have now been accounted for and there have been no reported deaths.
Fire Risk
Australia’s hot, dry climate makes bushfires a major risk in the southern hemisphere’s summer. The worst fires in the nation’s history, the so-called Black Saturday blazes, killed 173 people as they swept through rural Victoria in February 2009.
Eighty percent of the country recorded temperatures above 40 degrees Celsius last week, with such conditions forecast to continue in parts of South Australia, Victoria and New South Wales, according to the weather bureau.
A catastrophic fire danger alert, meaning any fire that starts has the potential to cause significant loss of life, has been issued for tomorrow in the New South Wales districts of Illawarra/Shoalhaven and Southern Ranges, the Bureau of Meteorology said on its website today.
At least 100 homes and buildings have been destroyed in Tasmania, which has a population of about 500,000 people out of Australia’s more than 22 million. As many as 1,000 residents were sent by boat from the Tasman Peninsula to the state capital, Hobart, according to police.
About 600 people took shelter at Port Arthur, a former convict settlement that’s now a tourist destination about 90 kilometers southeast of Hobart, while as many as 2,000 were sent to the nearby town of Nubeena, police said yesterday.
Buildings Destroyed
Fires destroyed about 30 percent of the buildings in the Tasmanian coastal village of Dunalley east of Hobart, including a police station and a school, and 40 percent of the structures in the community of Connellys Marsh, police said. More than 20 homes were destroyed in the Murdunna area north of Port Arthur.
Fire crews from Victoria and New South Wales have been sent to help in Tasmania. While conditions eased overnight, fires are still burning in the state, according to the Tasmanian Fire Service.
The Insurance Council of Australia called the Tasmanian wildfires a catastrophe for the island state in a Jan. 5 statement.
“It is much too early to assess or estimate the cost of the bushfire in Tasmania,” Insurance Council spokesman Chris Sealey said in a phone interview today. “We have people on the ground assessing the damage and helping policy holders.”
Britain’s Queen Elizabeth II, who serves as Australia’s head of state, sent a letter supporting efforts by firefighters, volunteers and emergency workers and expressing “deep concern” in the wake of the destruction, Tasmanian Governor Peter Underwood’s office said in a statement.
To contact the reporters on this story: James Paton in Sydney at jpaton4@bloomberg.net; Jason Scott in Canberra at jscott14@bloomberg.net

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

www.chshedging.com

CHS Hedging, Inc.
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