Overnight Highlight's from Country Hedging's Tregg Cronin 7-24-12

Outside Markets: Dollar Index up 0.072 at 83.778; NYMEX-WTI down $0.17 at $87.99; Brent Crude down $0.31 at $102.94; Heating Oil down $0.0114 at $2.8075; Livestock markets are mostly firmer; Gold down $3.10 at $1574.00; Copper is down $0.0200 at $3.3610; The Yen and Aussie are firmer while all other major currencies are weaker; Cocoa and Cotton are firmer, while all other major currencies are firmer; S&P’s are up 3.00 at 1340.75, Dow futures are down 15.00 at 12,630.00 and Treasuries are lightly mixed.

Equity futures are mostly steady, although most everything was lower in the overnight until German Chancellor Merkel came out in opposition to Moody’s knocking Germany’s credit rating outlook to negative from stable.  She reiterated Germany will remain in stable financial condition through sound fiscal policies, and markets seemed to like it.  It didn’t push any confidence towards Spain, however, with their 10-year Treasury yields rising towards 7.53% and their Credit Default Swaps up to 640bp.  Balancing the gloom from Spain was China’s manufacturing sector clawing back towards growth in July.  The HSBC PMI for July rose to 49.5 from 48.2 in June.  This would seem to suggest the monetary easing done the last several weeks is having an effect.

More rains fell overnight in the upper Midwest, dropping in MT/ND/SD/MN with nice rainfall occurring in the Twin Cities this morning.  A path from Alexandria, MN to Rochester has already received upwards of 1” with no signs of the system quitting anytime soon.  The 5-day forecasted precip map shows the current system to continue across the Great Lakes Region and drop down into the ECB with IN/OH/WI/MI receiving 1.00-2.50”.  IA/MO/NE/KS should be quiet aside from the occasional pop up shower.  Temps in the corn belt yesterday were hot with 90’s in the north of I-80 and 100’s elsewhere.  The weekend should once again be dry, with chances of rain in IA/IL by the first part of the week, although coverage amounts differ.  Temps will cool into the mid to upper 80’s for most areas next week with some low 90’s possible in the West.  The 11-15 map is showing a general drink for the corn belt, but not much confidence at this point.  NOAA’s maps were notably hotter and drier than the privates we subscribe to.  Australia is dormant.

Additional selling pressure showed up at the overnight open last evening, and has carried through this morning led by the soy complex.  Soybeans once again found themselves down as much as $0.57 after dropping near limit the prior session.  The maps turning a bit more favorable definitely has some thinking this soybean crop is still salvageable, although one must certainly acknowledge the run we were on and how badly we needed a correction.  Private scouts continue to cut yields, and most are giving almost no yield chance to double crop acres.  If, and it’s a big if, the rains fall as scheduled, it would seem we can stabilize this crop, but few think we can push yields back above 40bpa which is where they need to be to stifle this rally.  Dec corn saw only moderate losses overnight.

The crop conditions declines yesterday were supportive for corn, although it seemed as though the drop on soybeans wasn’t enough to please the trade.  In overnight headlines, The Ag Minister of Kazakhstan cut their export forecast to 10MMT, down from 12.1MMT last year.  They were likely to harvest 12.8MMT, not the 14MMT previously forecast.  It would seem FSU crops are not done declining.  The government also scrapped transportation subsidies due to rising commodity prices.  Russia has exported 902,000MT of grain in the first 18 days of the marketing year consisting mainly of wheat.  More chatter overnight about the Pacific moving into El Nino and this affecting Aussie and Indian crops.  FWIW, El Nino is typically associated with above average South American crops.

Open interest changes yesterday included an increase of 8,860 corn, 4,140 wheat, and 1,540 soy oil.  Beans were down 6,110 and meal was down 4,200.  Chinese markets dropped sharply overnight with soybeans down 70.25c, meal down $18.20, oil down 186c, corn down 6.75c and wheat up 1.25c.  Paris wheat is down 23c, Rapeseed is down 28c and UK feed wheat is down 20c.  Overnight headlines said the US won’t be the only one with a below trend corn crop as yields in the EU are forecast to be down 12% from last year to 6.73MT/ha.  This would be the lowest yield since 2007.  France and Germany, the wheat exporters of the EU, are in better shape and have been raising crop estimates, however.  Doane Advisory Service kicked off their annual crop tour yesterday and said yields in IL were 27% smaller than a year ago and 21% below the final USDA forecast in the three crop districts they looked at.  Yields ranged from 70-202 within a 30 mile stretch.  Soybean yields were forecast down 16% from last year and 27% from the USDA’s guess in Jan.  

Call things weaker today as we continue to consolidate the rally from the last couple weeks and as rains fall across the upper-corn belt.  The market believes the soybean crop is still salvageable, and as long as that is the case, we can take premium off.  We’ve been goaded into believing wet maps before and it has proved to be for naught.    Bottom line is soybeans have an incredibly tight balance sheet with trend line yields and those look less likely today.  Make good sales along the way, but the final note hasn’t been sung yet.

Trade as of 7:10

Corn down 8-13

Soy down 29-34

Wheat down 9-18

The Spring Wheat Tour begins today so expect yields from ND throughout the session with the tour wrapping up on Thursday.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
www.countryhedging.com
Country Hedging, Inc.
The Right Decisions for the Right Reasons

Comfortable Changes

Below is a rough draft for a newsletter article that I did up.  Won't come out for a few weeks; but here is a sneak preview..........

Comfortable Changes

Ok…… I do really struggle writing an article for newsletters because of the fact that our grain markets are ever changing and by the time a newsletter gets put together, proofed, and sent out our markets may have changed dramatically.  No one really knows the future the only thing we know is that there be will change.  Our markets are called futures markets just for that reason; that we don’t know what is going to happen with them in the future.

All we know is that there will be change; and plenty of change in prices is what we have experience in the past few years.  Did you know that since our bull markets started in June of 2010 we have had well over 100 (I stopped counting at 100 with 10 months left) moves of 30 cents or more in a couple day period in the KC Wheat contract.  It was just a few weeks ago that we seen beans up about a dollar a bushel in a week or so; follow by down about a dollar a bushel a week or so later.  After a bullish crop report we seen beans move 85 cents from their highs to their lows.  Not mentioning the swings we have had for the other grains like spring wheat, sunflowers, and corn.  Bottom line is our markets are always changing.  So much so that I could never write an article for a couple weeks in the future without expecting some major changes.

Ok I think everyone knows that our markets are always changing.  That we determined and is well known.  What is more important is what we do with those changes; are we able to manage them.  In grain marketing with grain price outlook do we make decisions that are fearful or greedy?  Do we put our self in a situation where we are forced to make bad sales at the wrong time?  Do we fail to make sales when our gut is telling us to sell at nice profitable levels?

Each of you know your answers to the above questions; but with our every changing markets are you able to adapt in a comfortable way?  Do you have a marketing plan that leaves you comfortable at night?  A pro-active risk management strategy that allows you to be successful in the future whether the crop prices for corn, wheat, soybeans, and sunflowers go up, down, or sideways? 

At the end of the day the message is simply get comfortable in our changing market.  For some of you that might mean writing a marketing plan which is something we would be happy to help you with .  For others it might mean simply having a solid crop insurance plan.  Others it might mean making scattered profitable sales to help avoid the extremes price swings that we seem to have.  Many of you might use put options to help protect downside risk in our markets.  Some of you might feel you need to re-own grain sales in case you sell to soon or use min-price contracts.  We can help you with all of these.  Bottom line is your Midwest Cooperatives Grain Marketing team is here to help you find your comfort zone in our ever changing market.  Don’t forget we have all sorts of tools to help you in your grain price risk management; such as the min price contracts, weekly marketing meetings, helping of writing grain marketing plans with the ability to tie in everything from finance to inputs to the sale of grain, and a Country Hedging Branch Office.

So there you go; that is my preach. Get yourself comfortable!

Opening Grain Market Comments 5-15-12

Markets are called better behind a better overnight session; while outside markets are mixed and could lead to a little pressure with ideas that the grains open a little softer then where the overnight left off at.

In the overnight session corn was up 5, beans where up 18 on old crop, new crop beans where up 15, KC wheat was up 8-9 cents, CBOT wheat was firmer by 8, and MPLS wheat was 6 higher.  At 8:50 outsides are mixed; EU wheat is up about 1 %, equities are near unchanged with the DOW up 5 points, crude is off about a dime, gold is off 8.00 an ounce, and the US dollar looks like it is making another move up with the cash index at 80.903.

Yesterday we had a crop progress report; that basically showed the majority of the row crops planted with good emergence and a good wheat crop.  We really lack weather premium right now as headlines lately have been great big crops coming.

Basis remains firm for corn and beans; perhaps firming a little bit.  Yesterday we saw open interest in soybeans go up which indicates good commercial interest and end user pricing; not bad thing to happen.

One thing that has been on the headlines lately is the issues in EU.  If it leads to more macro liquidation then the grains could struggle; if not it feels like basis and demand are strong enough that the grains have a chance to bounce from these areas.

I have heard talk of higher protein getting harvested down south.  I seen a train of 13.76 pro yesterday and heard most of 12.5.  Overall higher protein isn’t exactly the best thing.  It acts as a replacement for spring wheat if it is high enough and then it doesn’t get feed and doesn’t help our export program out.  So I think a higher pro crop down south hurts demand a little bit and I think demand is really what wheat needs if we want to have a bull story at some point down the road.  I would also have to think that a higher pro crop means yields are off a little from what was expected……typically pro and yields go hand in hand in a reverse relationship.

One thing we need to watch going forward is the inverse in the grains.  Most have a big inverse between old crop and new crop so if you are storing grain your cost is very high.  It is a good demand sign when things are worth more today then they are tomorrow so to speak but it is also a huge risk when marketing grain as a general rule you don’t want to sit on product threw an inverse.  Every day that goes by we get closer to new crop and the risk becoming greater as along as the inverse is out there.  Bottom line the markets are close to saying if you want to own the grain own it on paper as it doesn’t make sense to sit through the inverse.

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

A correction......or are the Bull Markets over for the Grains?

Was today a correction in our grain markets or has the tide changed?  Are the great bull markets of 2010-2011 coming to an end or was today just another natural (needed) correction?

As many others have been talking about lately such as http://www.dtn.com/ag/assets/thegatheringstorm.pdf it appears that we may be nearing the end.  As I stated in an agweb.com blog I think the time is near to have one foot either ready or already out the exit door.

Here are some of the things that look like they have perhaps started to change lately; indicating to me that things might be changing.

our bull markets do have some holes starting to form in them

1 russia exporting.......what I believe is the biggest change in our fundamentals........and my view is this is more negative the feed grains then quality wheat...............as that is what they are exporting.........
2 outside bearish months/weeks......key reversal seen in many grains and outside markets........like equities........some longer term trends have turned either sideways or down.............. seen the dtn link above for more detials
3 key reversals in many markets..........such as MPLS July today............couple year high followed by a close nearly 80 cents off of that high
4 Wheat in CBOT showing a constand series of lower high's........we hit the down trend perfectly a week or so ago..........now we are back near uptrend line support........will that hold or if it breaks will the selling really hit?
5 Crop conditions increasing in corn..........planting nearly finished.......weather forecasts seem to be changing...............European Rain........some heat units in other parts of the US that need them......95 ish in central south dakota today
6 over all economic situation..........feels like those markets have turned to sell the bounce..........not buy the break.......watching CNBC/Bloomberg....many are talking about risk diversification.......pulling money out perhaps?
7 funds caught wrong..........listing to top third........which is on agweb.com they commented how the funds had added about 50k contracts of corn......and at best they are around even...... and more then likely carrying a loss now
8 stages set for june report to not show the decreased stocks like many expect.........market is geared up for a bullish report looking at average trade estimates..............the report doesn't have to be bullish........last few months haven't been......that trend is perhaps changing
9 seasonal trends - I believe Ed Usset's rule is to not hold corn after July 4th; that is less then a month away
10 History repeats it self............high prices do cure high prices............also anyone notice when we made our lows in the grains??? about a year ago.........June 29th..........when where many of the 2008 highs made?  June 29th for corn.......  could we see an economic meltdown like we did in 08?  has the past couple years simply been a false correction in the big world picture?  Are things really better today then they where back then?.............

bottom line is all of the above is probably debatable........but i think for marketing and risk management purpose one foot should already be out the exit door............ or at the very least ready to make small PROFITABLE sales..........with little notice

Possible Re-Ownership Play for July CBOT Wheat

Here is a 3-leg play that I found interesting; it is the sale of a 7.10 put, the sale of an 8.50 call, and the purchase of an 7.70 call.  It has a max return of 80 cents; but unlimited risk below 7.10 futures; all of the above is based on when the options expire which I believe is June 24th.  At 8.50 profits are capped;

I like the trade under the idea of support and resistance; as that is aprox where the sold options are placed at.  Perhaps i rather simply sell the two short options; but if one was/is bullish the purchase of a call could help return a little more.

Super Strong Grain Markets as the Grain Markets Open very strong Easter Sunday

The Grain Markets opened very strong Easter Sunday; wheat and corn both up 10-20 cents.  Will they hold come Monday?

They have slowed down after trading the past couple hours but are still very strong, MPLS wheat is leading the way so far.  Old crop corn has gained about 7 cents on the new crop contract which is back near resistance.

The thing that really is starting to stick out to me is the fact that we seem to have too many jumping on the bull bandwagon for commodities in general.  Same on the bear bandwagon with the US Dollar; I can't remember the last time I seen or heard something from any source that was friendly the US Dollar.

It is and has always been impossible to determine tops in the markets until well after the fact; but it just feels like we are simply one or two re-test failures away for many of the grains.

Bottom line looks to me like some volatile days ahead......perhaps these markets simply go straight up; but then again maybe some headfakes happen along the way and just perhaps the ending destination (price) isn't exactly where everyone thinks it will be.

After all don't things always look the best and brightest at the top and the darkest at the botttom?