Overnight Highlights from CHS Hedging's Tregg Cronin 12-3-12

Outside Markets: Dollar Index down 0.335 at 79.872; NYMEX-WTI up $0.50 at $89.41; Brent Crude up $0.67 at $111.91; Heating Oil up $0.0165 at $3.0772; Gold is up $8.30 at $1721.20; Copper up $0.0120 at $3.6615; All major currenencies are trading firmer led by the Brazilian Real which is up 1.14% (Brazilian manufacturing data accelerated at the fastest level in 2-years); S&P’s are up 5.75 at 1420.25, Dow futures are up 50.00 at 13,058.00 and Treasuries are weaker.   

The feature in financial markets overnight has to be the sharply better equity markets in Europe.  At current, Spain is up 1.00%, Italy up 1.44% and France up 1.01% after the Italian/German 10-yr bond spread narrowed to less than 300bp for the first time in eight months.  Borrowing costs for Portugal, Italy and Spain are 10-16bp lower this AM.  This was after Chinese manufacturing data came in above 50.0, the contraction/expansion level.  This didn’t help Asian equities, however, with the Shanghai Composite dropping 1.03% and the Hang Seng down 1.19%.  Chinese equities remain near the lowest levels since Jan of 2009.  Eco data in the US today will include ISM Manufacturing (51.3), Construction Spending (+0.40%) and total vehicle sales for November (14.80 million).

Precip over the weekend was limited to WY/MT and some scattered precip in the ECB-NorthEast.  The 5-day forecasted precip map is showing some moisture in the Midwest for the first time in quite a while.  States along the MS-River from STL south and also those along the OH-River north will see anywhere from 0.25-1.4” over the 5-day stretch.  See map below.  Dry areas of the plains and WCB will continue to be missed.  NOAA extended maps are turning a bit more generous with precip, showing above normal precip for all areas East of the MS-River and north of I-80.  Temps above normal.  “The Argentine growing regions will see another round of unwelcome, heavy rains fall this week and then there are some signs that the pattern might be changing to one that is drier.  The bottom line is rains this week will continue to cause delays in summer crop planting and quality issues with winter wheat. Things in Brazil are in pretty decent shape in most cases.”  –John Dee

Positive trade in the grains all night, but accelerated to the upside about the time of the Dalian open at 8:00 CDT.  Dalian markets did see firmer closes on everything, but not to the extent that we find out markets up this morning.  Looking at weekend news flow, the support looks derived from Egypt’s GASC finally buying US wheat, the heavy rains in Argentine growing regions forecast this week and the steady demand for US soy and products.  We’ve also seen commodity funds turn a bit more friendly the space, even if not all corners of the Ag space.  Hedge funds increased bullish bets on commodities (all commodities, not just grains) by the most since August, jumping long positions by 9.8%.  Obviously some see China’s economy bottoming and the fiscal cliff finding resolution.

Over the weekend, Egypt’s GASC bought 400,000MT of wheat for delivery between Jan 15-Feb 10.  Of that total, 165,000MT was US-SWW at $335.87-337.39/MT and 115,000MT was US-SRW at $348.89-351.49/MT.  These are on a FOB basis.  Egypt also bought 60,000MT of Romanian wheat at $362.04/MT and 60,000MT of French at $359.89/MT.  The US absolutely had to participate in this tender, and it did, so now the question becomes what other destinations will the US turn competitive for?  It’s a good start but much more business needs to get done.  In other export news, Israeli groups are tendering for 115,000MT of corn in addition to some barley and feed wheat.  Shipments begin Jan 20.  Canada will update production estimates later today and Deutsche Bank thinks wheat will be revised slightly larger.  Australian grain handler CBH says Western Australian receivals have been 5.5MMT so far, or around 61% of the estimated total.  Lastly, Ukraine and China signed a memorandum of understanding with China’s COFCO to buy corn from Ukraine.  No sales have yet been signed.

Open interest changes Friday included wheat down 9,220 contracts, corn down 8,090, beans down 3,330, meal up 5,990 and soy oil up 4,630.  Looks like some pretty heavy liquidation considering the losses witnessed Friday, but much can be attributed to ongoing December liquidation and month end.  There were 1,939 re-deliveries in Chicago Wheat overnight, 246 corn and 1,616 soy oil.  In Minneapolis, there were 329 re-deliveries after 600 on FND.  When it’s all said and done, most of the corn should fine strong hands.  The St. Louis River gauge was quoted at -2.2ft this morning, with the expectation it will drop to -4.0ft by Dec 14.  -5.5-6.0ft would halt navigation.  Chinese markets o/n saw beans up 9.25c, meal up $6.40, soy oil up 71c, corn up 2.50c, palm up 87c, and wheat up 4c.  Paris Wheat s up 0.74%, Rapeseed up 0.26%, Corn up 0.79%, UK Feed wheat unchanged and Canola up 0.39%.

Call things better as demand is beginning to pick up in wheat, it remains steady on soy and the products and corn supplies remain a question mark.  The River will continue to be a negative effect toward price, but world importers still need our grain.  Soybeans would do themselves a favor to break out of their current downtrend which they are bumping up against this morning.  Keep in mind we’re between Thanksgiving and Christmas, and no substantial progress has been made on the Fiscal Cliff.

Trade as of 7:10

Corn up 6-10

Soy up 14-18

Wheat up 7-10   

  

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

www.chshedging.com

CHS Hedging, Inc.