Overnight Highlights 6-7-12 - from Country Hedging's Tregg Cronin

Below are the Overnight Highlight's from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.226 at 82.095; NYMEX-WTI up $0.78 at $85.70; Brent Crude up $0.30 at $100.94; Heating Oil up $0.0043 at $2.6760; Livestock markets are mostly firmer; Gold down $15.90 at $1616.90; Copper down $0.0015 at $3.3775 (but rallying); The Yen is weaker but all other major currencies are firmer; All of the softs are up, led by Cotton which is up 4.7% after being limit up yesterday; S&P’s are up 9.25 at 1324.75, Dow futures are up 60.00 at 12,479.00 and Treasuries are flat.

A host of economic data overnight with the most important being the People’s Bank of China moving to cut their benchmark interest rate by 25bp to 6.31% with their one-year deposit rate at 3.25%.  This is the first time China’s central bank has reduced rates since 2008.  This seems to be the responsible thing to do with growth still at 8.1% to prevent a harder economic slowdown than economists were forecasting.  Across our other pond, the Bank of England chose to leave its bond-buying program on hold and leave the key lending rate at a record low 0.5% where it has been since March 2009.  The decision was a close one with economists expecting the minutes of the meeting to show support for additional monetary easing.  Weekly jobless claims for the US at 7:30 CDT.

Rains in the last 24 hours were confined to N-TX and OK as well as some scattered showers in ND, W-SD and W-NE.  Radar returns this morning show the system in TX/OK as well as some rains working across SW-MN and ND.  Rains the next 5-days will finish up in TX, but also see 1-2” amounts fall across spring wheat areas of the US and Canada.  Overnight weather maps look to have a wetter touch this morning with the 6-10 still showing showers for a good swath of  the WCB.  This rain is expected to bring 0.50-0.80” with broad coverage Monday and Tuesday, although follow up rains later on in the week are being downplayed.  The 11-15 is putting rain in most of the upper-Midwest, although confidence is low.  70’s and 80’s should be the norm for Sunday to Friday, although heat is back by Sunday.

Grain markets are adding to their impressive gains from yesterday with additional strength this morning.  Interestingly enough, the soy complex is leading the way higher but seemed to do so around 4:00am, well before the news of China cutting interest rates hit newswires.  Basis is really firming, especially off the PNW where one major commercial elevator is thought to be caught short on some basis with limited supplies left in the country to cover it.  Corn basis is also getting hot with interior locations paying at or above record levels.  There are two schools of thought about remaining grain supplies in the country: 1) the farmer has the grain and is being very patient marketing it, or 2) he doesn’t have it and basis is reflecting it.  Both have implications for the June 29^th stocks reports.

The CNGOIC was out last night estimating June soybean imports at 6MMT, but also saying May and June imports likely exceeded 12MMT.  They are still forecasting crop year imports, which began on Oct 1, at 58MMT vs. the USDA at 56MMT.  In other export news, Japan bought 100,190MT of feed wheat and barley, and issued a tender for another 320,000MT for shipment by Sept. 30.  Taiwan bought 48,750MT of US milling wheat from Toepfer at prices ranging from $255.80-331.82/MT FOB.  Grades were DNS, HRW and WW.  In a state reserve auction, China sold just 13,902MT of soybeans out of a total of 600,000MT offered.  This is a big slow down from last week now that imported beans are near the same price, but domestic bean quality is much poorer due to the beans being from 2008.  South Korean flour mills are seeking 23,000MT of US origin milling wheat for Aug-Sep shipment.  Lastly, Japan bought 180,537MT of US, Canadian and Australian milling wheat.  The US share constituted 61,701MT while Canada sold 80,431MT.  Ukraine upped spring grain planted area by 17.1% thanks in large part to winter kill damage of wheat.  Much of the increased acres are thought to go to corn.

Open interest changes yesterday included wheat up 6,360, corn up 1,180, soybeans up 6,950, meal up 2,830 and oil up 3,570.  All of that is supportive given the firmer board yesterday.  Volumes look a bit light on the corn, but heavy on soybeans and wheat which again is a supportive input.  Chinese markets were mostly firmer last night with soybeans up 5.50c, meal up $5.50, oil up 47c, corn up 1.25c and wheat down 1.75c.  For the week, soybeans are up 29.50c so far.  There seems to be growing concern in the North China Plain, where they are harvesting wheat and grow a lot of their soybeans, about persistent dryness.  It is difficult to get an accurate assessment of Chinese growing conditions, but a forecast of record grain production for the 5^th straight year seems a bit of a stretch.

Call things better today given the friendly macro environment, the firm cash markets and tightening spreads.  Export sales this morning could offer a bit of pause because corn isn’t likely to best expectations.  We had no daily sales announcements, and basis hadn’t really began firming up prior to last Thursday’s cut off.  Next week could be a different story.  The other one to watch will be soybeans as week after week of more sales than needed will keep downward pressure on old crop soybean carryout estimates.

Trade as of 7:05

Corn up 4-7

Soy up 18-22

Wheat up 3-5      

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
www.countryhedging.com
Country Hedging, Inc.
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