Overnight Highlights for 7-18-2012 from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.289 at 83.321; NYMEX-WTI down $0.47 at $88.74; Brent Crude down $0.29 at $103.69; Heating Oil down $0.0058 at $2.8364; Cattle steadyish and hogs weaker; Gold down $12.10 at $1577.40; Copper down $0.0015 at $3.4530;  The Yen is firmer, but all other major currencies are firmer; Cotton and Lumber are firmer, but all other softs are weaker; S&P’s are down 4.50 at 1354.00, Dow futures are down 33.00 and Treasuries are slightly bid.

Financial markets are fairly subdued this morning as we await the second testimony in front of Congress from Fed Chairman Ben Bernanke.  At first, markets didn’t like the somewhat hawkish tone he took yesterday, and started to sell off.  By the close, however, investors seemed to realize his stance hadn’t changed all that much and instead focused on some better than expected Q2 earnings.  In other news, the Bank of England policy makers may reconsider the case for an interest-rate cut after assessing the European debt crisis.  They did vote to increase their bond buying program by 50 billion pounds.  The Czech Republic’s borrowing costs fell to an all-time low at today’s auction.  The average accepted yield on the 2021 security fell to 2.316%.  Their rating is A1.

Some badly needed rains fell in parts of the northern plains last night with KELOLAND reporting 1.0” amounts in Winner, SD and as much as 3.0” between Aberdeen and Webster, SD.  Elsewhere, areas along the ND/MT border picked up between 0.10-0.50” with localized amounts near 1.0”.  That system continues to track across SD and MN this morning and should impact WI later today.  5-day forecasted precip maps show WI getting 1.4” by Monday while IN could see a broad 1.0” and areas SE of there should also see meaningful rainfall.  IA/IL/NE/MO should be quiet.  Not a ton of change on extended maps with the 6-10 seeing scattered precip across the Midwest, but nothing of huge totals.  The 11-16 calls for weak riding to bring average/below precip and average temps.  Dry weather continues to dominate Australian wheat growing areas and should continue to do so the next 10-days.  Most areas are in good shape following decent precip recently, but the forecast is not a good one.

Similar to the day before, grains are starting out on a weak note, enduring a bit of profit taking as prices pushed to either new contract highs yesterday or remained near the highs for the move.  Wire services continue to be flooded with stories about supply and demand, which is keeping grains uneasy enough at the moment.  Lots of price forecasts are being thrown out this morning including Newedge saying corn may rally to $8.50 as production continues to drop.  Their yield forecast fell to 134.9bpa.  Accuweather dropped their yield forecast to 138bpa.  It would seem corn prices above $7.50 are pricing in a yield below 140, but not quite towards 130bpa.  If we can’t get a pattern change over Iowa the next 10-days, we should make a push through all-time highs at $7.99 ¾.

Headlines last night included India saying it will consider limiting the quantity of food commodities that traders can stockpile as the weakest monsoon in three years fuels a food price rally.  At the same time, 60% of their growing region has received below average monsoon rains.  A survey for the Cattle on Feed Report Friday says feedlots placed 1.5% less cattle than a year ago, inventories will be 2.56% higher, and marketings will be down 5.977%.  Many think feedlots pulled back on the reigns already last month, but declining pasture conditions probably added more cattle than people realize.  The Australian Bureau of Meteorology said there is a 60-70% chance Australia will receive below-median rainfall the next 3-months due to El Nino.

Pork prices in China fell last week, but have been showing signs of stabilizing.  Average wholesale price was $3.20/kg, down 0.7% w/w.  Last week’s prices were still down 23.5% y/y.  As US pork prices continue to fall, may be easier for China to import pork as opposed to bring in feed supplies such as corn and meal.  In export news, Jordan once again canceled a tender for 100,000MT of wheat (second time now).  Japan was also said to have canceled a tender to buy 320,000MT of feed wheat and barley due to high prices, but have since retendered.  Russia harvested 17MMT of grain up to July 17^th vs. 14.64MMT last year as the drought ripened things faster this year.  O/I changes yesterday included an increase in corn of 11,970, wheat up 380, soybeans up 5,320, meal up 4,160 and oil up 1,060.  Chinese markets were slightly weaker overnight with soybeans down 6.50c, meal up $3.00, oil down 43c, corn down 3.50c, and wheat down 6.50c.  Paris wheat is currently down 1.50%, Rapeseed down 0.77% and UK feed wheat is down 0.91%.

Call things lower today as we chop around and continue to consolidate the recent gains.  It certainly doesn’t feel like the top is in considering the weather pattern is far from changed and the supply hasn’t stopped going down.  Demand stories are popping up on corn daily, but until we determine the supply, we can’t assume the rationing job has been completed.  Soybean and wheat have their own stories to keep them supported, but it does feel like one big trade.  Constantly assess available supplies and % marketed.

Trade as of 7:15

Corn down 2-5

Soy down 3-5

Wheat down 2-9    

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