Overnight Highlights for 6-26-2012 from Country Hedging's Tregg Cronin

Below are overnight highlights from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.121 at 82.376; NYMEX-WTI up $0.17 at $79.39; Brent Crude up $0.72 at $91.73; Heating Oil up $0.0153 at $2.5538; Livestock markets are mostly weaker; Gold down $3.00 at $1584.50; Copper down $0.0040 at $3.3215; The Euro and Franc are softer, but the other major currencies are firmer; Cotton and Lumber are weaker; S&P’s are up 4.50 at 1311.00, Dow futures are up 37.00 at 12,468.00 and Treasuries are weaker.

Asian equities ended lower, but European and US stocks and futures are mostly better ahead of some key economic data here in the US.  Pressuring to trade was a selloff in European debt and a rather poor bond auction for Spain.  While watching its borrowing costs drop most of last week, Spain’s 10-year treasury yield is up 7.6bp to 6.633% this morning.  Even Germany’s borrowing costs are up this morning with her 10-year yield at 1.515%, up 5.3bp.  None of the aforementioned have given energy traders much to crow about, and crude continues to languish below $80/bbl.  Later this morning we’ll get the Case-Shiller home-price index for April and later consumer-confidence data for June.

Rainfall in the last 24 hours consisted of some very light, scattered showers in west river SD and some additional rain along the MT/Canadian border.  The current radar is clear aside from some rain off the PNW and more heading up the East Coast.  The 5-day forecasted precip map shows the best chances from Sioux Falls to the Quad Cities with the potential for up to an inch to fall in SE-SD.  The rest of the Midwest will be quiet as Debby looks to move up the Eastern Sea Board.  The 6-10 day maps were mostly clear with the exception of a decent storm across NE.  Yesterday afternoon’s maps showed rain in the ECB during the 11-15, and the overnight maps are once again putting rain there.  Again this is a bit far off to have much confidence.

Grain and oilseed markets were mostly choppy overnight, although both did open sharply better at 5:00 last evening following the worse than expected condition ratings from the USDA.  It seems we have a serious supply issue brewing with several analysts dropping their national average yield to 156bpa with some already talking of yields angled towards 150.  While we have the buffer of more acres this year, which probably go up on Friday, we can’t afford to have a repeat of last year in terms of yields in the major production states.  Even more salient is the fact soybean yields are probably headed lower, the one commodity which absolutely had to have trend yields to prevent serious rationing.  Wheat markets are leading losses this morning as it has the most comfortable balance sheet.   

Overnight headlines included one from Cairo which said Egypt’s state wheat buyer has enough supplies for at least 7-months and is looking at a new tender for delivery in August.  There was another headline which said both Koreas are suffering their worst drought in a century, with one major cooperative farm saying they would lose half their corn without imminent rain.  South Korea is a major buyer of US grains.  On yesterday’s crop progress report, thought it worth pointing out IN lost another 10% G/E on corn to put them at just 27% G/E vs. 57% last year.  IL was down 13% to 37% G/E vs. 64% last year.  CO/TN/KY/TX also saw double digit corn declines.  Conditions are now the worst for late June since 1993.  The soybean condition rating is also the lowest since 1993.  Noted crop scout Dr. Cordonnier traveled throughout Indiana, Ohio and E-IL over the weekend with his trip summary stating conditions looked like late August, and were worse than he expected.  “Most crops have already suffered yield loss and will continue to with current weather.”

Open interest changes during yesterday’s session saw mostly short covering with Chicago wheat down 3,550, corn down 4,920, beans down 2,750 and oil down 6,430.  Meal was up 5,990 contracts.  There are still 120,000 contracts remaining in July corn.  China’s markets were mixed overnight including beans down 7.75c, meal down $2.10, oil down 47c, corn up 1.25c and wheat up 2.50c.  There were more articles overnight talking about the lack of profitability in ethanol production.  Unfortunately, the lack of production appears to be rolling forward into new crop.  Remember, we have millions of gallons of RIN’s which can be used in place of actual ethanol production should margins remain negative or corn become hard to source.  Declining crude and rallying corn can’t continue forever.

Call things mixed to start, although corn and beans are both pushing positive as we cross 7:00.  If outside markets can stabilize and even rally, our markets could tack on additional premium.  Producers want contracts with a “6” on them, although that didn’t offer a great deal of resistance overnight.  Demand is iffy on corn, but supplies are declining.  Soybeans have both, and wheat has the potential for higher exports if conditions continue to decline in the Black Sea and Australia.  Protect margins and take profits.

Trade as of 7:05

Corn up 1-5

Soy up 1-3

Wheat down 11-12 WW/ up 2 SW

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