Afternoon recap from Country Hedging's Tregg Cronin 11-19-12

Outside Markets as of 1:00 CDT: Dollar Index down 0.294 at 80.872; NYMEX-WTI up $2.77 at $89.68; Brent Crude up $3.14 at $112.07; Heating Oil up $0.0974 at $3.0841; Livestock prices are firmer; Gold up $19.70 at $1734.00; Currencies firmer.

Very supportive outside markets today on optimism towards the fiscal cliff after comments Friday made it sound like the talks were “constructive.”  Highly doubt we’ve seen the last of the volatility tied to this issue.  On top of the comments from DC, the ongoing tension in Israel/Gaza has also put a bid under energy markets.  Commitments of Traders data showed funds holding the smallest net long in crude oil since September of 2010, leaving plenty of room for additional buying should it be deemed necessary.  Economic data in the US today included existing home sales which were reported at 4.79 million units, above the 4.70 million estimate.  This was a 2.1% increase from September, higher than the unchanged estimate.  Year-over-year sales were up 10.9%.

A very nice bounce in corn today which picked up around 10:00 CDT.  Trade managed to push through the $7.32 resistance level with relative ease, a positive technical signal and likely adding some additional buying.  It is also putting more distance between spot and the $7.00 level which currently contains the most amount of open interest for the expiring December options.  Option expiration is 12:00 CDT Friday.  At last glance, there were 41,763 total open options including 27,966 puts.  There are also 36,687 options open at the $7.50 strike, making it a potential candidate as well.  Supportive overnight was word Asian buyers are turning increasingly more to the US for corn import needs due in large part to still hefty lineups in Brazil.  While down from the 2.3MMT at the beginning of the month, the shipping lineup this morning was pegged at 1.366MMT, or 24 Panamax vessels.  The slow progress is no solace to Pacific Rim buyers waiting for replacement.  Somewhat encouragingly, there is only one vessel left in the lineup declared for the USA.  Doesn’t mean more can’t be declared later, but fewer than has been the case.  Movement was very slow to begin the holiday shortened week.  CIF values were seen down 1c on the bid side for Nov at +89/95Z while Dec was up 2c to +82/86Z.  Hedging was heavier today than last week, but by no means “heavy.”  Spreads held relatively well, up 0.25c on the day to -3.50c.  Would think it would show more strength were it not for worries about a river closure sometime mid-Dec.  No real change to that over the weekend, with draft restrictions looking likely around Dec 15.  The PNW situation has taken on new life with a potential strike at the Port of Portland on Nov 25 if an agreement isn’t reached.  Some of the elevators might not be affected, but not a great situation when the two major ports are hampered.  Export inspections were 14.4mbu, above last week’s 9.5mbu but below the 23.6mbu needed weekly to hit the USDA’s export forecast.  More expectation for a pickup in exports than what’s actually happening. 

Wheat markets managed a positive close, although it was definitely the laggard of the major Ag markets.  Some wind seemed to be taken out of the sail when Egypt didn’t show up to tender over the weekend, and offers on the Iraq tender were reported, showing US as $40-50/MT out of the money.  C&F offers included Romania at $394/MT (50TMT), then Russian at $399/MT (50TMT).  These were followed by 400TMT out of Australia at $401-407.65/MT, 300TMT from Canada at $404.95-425/MT, some Bulgarian at $402/MT and Hungarian at $406/MT.  US-HRW was offered at a staggering $444.04-454/MT.  This seemed to shock some traders as it means US hard wheat is by far the most expensive in the world, and there is still a fair amount of wheat for sale out of origins thought to have dwindling supplies.  In addition to this story, there were also wire accounts of Indian wheat trading into Eastern Africa as milling wheat, not feed wheat like many had been penciling it.  When one considers the Indian supplies (which weren’t available in 2007/08), and the fact the Black Sea is still shipping wheat, it becomes clear the situation isn’t as dire as even 2010/11, and the window for ratcheting up exports to hit the USDA’s target of 1,100mbu is slowly closing.  Bloomberg reported grain exports for November will probably be a record 3.2MMT for this month.  There has been 1.8MMT so far this month with 900TMT wheat and 800TMT corn.  Lastly, only around 2% of the UK’s wheat has been rated as “high-quality bread milling” as opposed to 40% in 2011.  Could mean quality imports later in the year.  Other notes included Western Australia’s harvest pegged at around 35%.  This is another item which could have been applying pressure to our markets in addition to the funds dumping.  The commercial shorts have increased from 234,794 contracts to 245,010 the last several weeks which could include some Australian farmer selling.  These prices look a lot more attractive to the world farmer than they do the US farmer, and as we’ve seen with Canadian farmers, they will sell.  Wheat/Corn spreads corrected further today with the KWZ/CZ tumbling all the way to +138.25c, the lowest level since October 12^th.  WZ/CZ closed at +103.00c, the lowest since mid-September.  These should continue to contract as we aren’t competitive on feed, and if our export prices remain as high as they are, we need feed demand to help out the lack of export demand, otherwise our balance sheet will get more comfortable.  Spreads were unchanged to better on the day, but the last trade on the MWZ/MWH put it at -11.00c.  Inter-markets were quiet.

Soybeans firmer all night as prices held some very important retracement levels, which also coincided with the old highs from September 2011 and April 2012.  Former resistance, once broken, becomes new support.  Combine that with enough people yelling “oversold” and we can bounce.  In addition, export inspections confirmed another huge week of shipments at the expense of grains.  We also saw the USDA announce another 20,000MT of soybean oil sold to unknown destinations for 12/13.  This follows two sales last week, giving us around 90,000MT of soybean oil sold in the last 7-days.  This has been a big reason behind the oilshare correction we’ve seen as of late.  Soy oil was up 1.79% today while meal was unchanged.  Soybean basis was unchanged on the river today at +99F.  PNW bids could be called +120F, unchanged.  Most eyes are waiting to see what happens next weekend with the PNW longshoreman strike.  South Korea is also sniffing around for some soymeal.  With the huge soymeal export sales and recent purchases of soybean oil, one has to wonder if imports are buying the products because that is cheaper than buying the beans and crushing them themselves.    Soybeans feel as though they should move back inside a 1400-1500 range.

Crop Conditions out tonight showed a huge drop in PNW conditions, presumably due to the excessive rains the past several weeks.  Note map below.  The central belt seemed like it stabilized, although CO also saw a very big drop of 12pts.  Safe to say this is the worst established wheat crop on record.

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

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Afternoon Recap from Country Hedging's Tregg Cronin 11-26-12

Outside Markets as of 1:30: Dollar Index up 0.031 at 80.256; NYMEX-WTI down $0.45 at $87.85; Brent Crude down $0.35 at $111.03; Gold down $2.70 at $1748.70; Copper up $0.0050 at $3.5330; All major currencies are trading weaker; Livestock markets closed weaker.

Two pieces of economic data in the US today including the Chicago Fed National Activity Index which came in at -0.56 vs. a consensus of 0.18.  The Dallas Fed Manufacturing Survey was posted at -2.8 vs. a markets estimate of 4.7.  Equity markets were under moderate pressure as financial media dusted off fiscal cliff stories once the malaise of Black Friday wore off.  Nothing much to report in the financial markets, although the Dollar Index is throwing off some interesting chart patterns, as shown this morning.  Argentine Credit Default Swaps backed off from this morning’s highs, but remain at rather elevated levels.

Firmer for most of the night and all-day, but corn gave back much of its gains to close only 1-2 higher in most contracts.  The excitement from a big export sales report Friday seemed to wear off a bit, especially once the small shipments data arrived mid-morning.  Traders also made note of the fact Japan accounted for 57% of the 776,000MT sold last week, so other destinations remain somewhat absent.  One week of export sales doesn’t change the current situation if we follow it up with a paltry week this week which is possible considering last week was a holiday shortened one.  Export inspections were 15.9mbu vs. 14.4mbu last week and the 23.8mbu needed weekly.  Shipments are currently down 45.2% y/y, but soybeans are up 37.8% so there is definitely a pecking order with elevating capacity.  China did take 4.43mbu last week with one boat each of the Gulf and PNW.  Brazil’s corn lineup still shows 1.593MMT as of this morning vs. 1.366MMT last week.  Dr. Cordonnier was floating an article on his website talking about 3MMT of corn still in the Brazilian country side which needs to move to market before soybean harvest begins in mid-January.  I guess that’s near-term supportive but overall pressuring if they have that much corn left.  Charts certainly have a better feel to them now that December options are out of the way.  The next upside objective on corn is the $7.55 mark basis the December, then $7.76 from October 11^th.  We should run into some farmer selling between $7.50 & $7.75 now that the farmer has readjusted his marketing objectives with few thinking corn needs to make a run back at $8.50.  Ethanol margins are projected negative by $0.30/bu, and reports continue from the country about ethanol plant financial health.  Spreads were mixed/weaker with only the CZ/CH gaining 0.25c to -4.00c while the other calendar spreads weakened.  The Missouri River flows out of Gavin’s Point in Yankton are expected to be reduced this coming Friday, and the STL River Gauge read -1.5ft this morning.  At -5.00ft, navigation becomes impeded.  Rail freight hasn’t seen much excitement yet, but barge line operators are growing increasingly anxious with a closure all but assured without a massive rain system.  NOAA maps look dry the next 15-days.  Brazilian guru Michael Cordonnier cut his Brazilian corn production number 1.0MMT to 71.0MMT citing dryness.  CIF bids were indicated at +84Z through March while offers are around 4c above that.  This is putting IL river corn below delivery by 4.9-9.4c for Nov and FH-Dec, but 8c above for LH-Dec.

Wheat too benefited from a favorable export sales report Friday, but saw terrible shipment data today which helped temper things.  There was some decent inter-market spreading with buying KC wheat and selling Chicago/MPLS.  Renowned speaker and analyst Dennis Gartman issued a memo to clients saying he wanted to buy KC July ’13 wheat at a 50-52c premium over July Chicago with the expectation for it to go to $1.00.  This has already been a crowded trade, but apparently people wanted to own it today.  Wheat export inspections were 7.8mbu vs. 11.4mbu last week and the 23.3mbu needed weekly to hit the USDA’s mark.  Regular destinations took the wheat in this rather slow week.  Shipments for the year are down 14.0%.  Iraq issued another tender for a nominal 50,000MT with origins including Russia, Kazakhstan and Romania along with the US, Australia, Canada and France.  Unless something crazy happens and nobody offers any wheat, US wheat should be too expensive on this one again.  Dec 3 deadline.  Jordan issued a tender for 100,000MT.  India said it has shipped 800,000MT this year so far with another 1.3MMT worth of commitments to hit their 2.0MMT quota.  Odds are good another 1-3MMT will be sold from state reserves for export, and needs to be considered in the overall wheat export/import grid.  UK winter wheat planting was reported down 12% to 4.3 million acres due to wet weather preventing field work.  Spring barley will likely take up the slack.  The EU on the other hand, is generally in good condition including France.  There remain some risks to Russian wheat due to above normal temps which could lead to frost damage.  This all from a report by MARS (EU’s Monitoring Agriculture Resources).  Not much change to to-arrive bids with 14.0% exploders at +70/75Z while shuttles are seen at +55Z.  Call the PNW +85Z, but it would take +95Z to buy wheat from the country at any good west spreader.  The national winter wheat condition rating fell 1pt to 33% G/E.  Biggest declines were seen in MO (-6) IL (-3) OH (-3) NC (-6) TX (-9) AR (-11) SD(-2) NE(-3).  The PNW erased some its losses last week with a 22pt jump in OR and 10pts higher in WA.  Odd to see the huge swings.  Emergence is pegged at 88% vs. 90% average.  SD is still only 60% emerged, with MT at 68%.  This is the last crop condition rating of 2012.

Soybeans showed the most strength today, closing with 6-10c gains, although some late bearspreading hit spreads rather hard with the SF/SH closing down 3.75c to +12.00c.  A trade and close of +12.00c is the lowest print and close since March 30^th , 2012.  The weakness in both the bean and corn spreads seems to be tied to the panic on the river.  It looks rather likely the river will be restricted or altogether closed sometime in December, and if/when it does, it will render owning the spread to take delivery useless because one won’t be able to get the grain past St. Louis.  So despite the fact our basis is hot along the river, and the fact we are trading near or above delivery equivalence, we could continue to see the spread get pressured.  The USDA reported another 20,000MT of soybean oil sold to unknown destinations for the 12/13 marketing year.  The current soybean oil sales now exceed the annual USDA forecast for all of 12/13 by 60-80 million lbs, and we have 10-months of the marketing year left.  Soybean oil basis in IL is -300Z, while bean oil basis in Brazil is +100/150Z.  Soybean oil calendar spreads are still running 100-200% of full carry, signifying exporters are basically getting rid of it for free to make room for more oil as the guys crush beans to get the meal.  CIF bids were unchanged in the spot at +100F against no offers.  Dec is +95F.  This puts spot along the IL at 6.4c below delivery, but above delivery by 5-13c through February in Zone 3.  That’s supportive, and March is sitting around 19.5c above delivery, implying the SF/SH might be getting a little cheap.  Celeres reported soybean planting at 74% complete in Brazil vs. 81% a year ago.  The crop is thought to be 50% sold vs. 39% a year ago.  A big reason behind that has been the weakness in the Brazilian Real which has put more money in the farmers’ pocket per bushel, and has tempered the big correction we’ve seen in the CBOT prices.  Soybean inspections were 45.5mbu vs. 66.8mbu last week and the 19.9mbu needed weekly to hit the USDA’s mark.  Last week was shortened due to Thanksgiving which could account for some of the lighter totals.  Main concerns with South America right now are too wet areas in Argentina.  German milling wheat trading into Brazil should speak to the idea Argentina’s received too much rain.  This needs to be monitored, but it doesn’t seem to be setting off any alarm bells just yet.  No one is really axing production numbers anyway.  As big of a problem as the rain could be, if Argentina’s government defaults, it could be as big of a problem or worse.

Sláinte.

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

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons

Afternoon Recap from CHS Hedging's Tregg Cronin 12-3-12

Outside Markets as of 1:15 CDT: Dollar Index down 0.350 at 79.857; NYMEX-WTI up $0.16 at $89.06; Brent Crude down $0.37 at $110.86; Heating Oil down $0.0042 at $3.0565; Cattle firmer and hogs weaker; Gold up $6.40 at $1719.10; Copper up $0.0075 at $3.6560; S&P’s are down 3.25 at 1411.50, Dow futures are down 34.00 at 12,974.00 and Treasuries are softer.

Financial markets gave back most of the morning gains after weaker than expected readings off the ISM-Manufacturing survey which shoved us back below the boom/bust level of 50.0 for the first time since July.  Many were quick to cite Hurricane Sandy for the disruptions, but details seemed to suggest it had more to do with uncertainty generated by the fiscal cliff than the super-storm.  The new orders component and the employment index did drop, but the production index actually rose.  If Sandy had forced widespread closures, the production index also would have dropped.  There was little for comments from Washington DC which might have been a good thing.  The dollar index remains under pressure, trading at the lowest levels since October 31^st.  The continuous commodity index was up 0.50% today to 574.28.

A rather uninspiring close today with corn giving up 8c gains to see the front-end of the curve close down 1-2c.  The deferred contracts did manage to close in positive territory, pushing a bearspread bias on the day.  Slower than expected export shipments, weakness in wheat, softening cash markets after last week’s movement and still no strong stopper on the 246 December deliveries all seemed to be factors.  Export inspections were just 9.6mbu, the second-lowest shipment total of the marketing year and well short of the 24.1mbu we need to ship each week to hit the USDA forecast.  Total shipments to date are 208.3mbu, down 48% from a year ago.  Worth noting, China took 2.01mbu off the PNW, an encouraging sign to see them keep taking our corn.  Farmer hedging today slowed quite dramatically considering these prices were available last week after some better movement early.  Despite the lack of movement, cash corn basis seemed to back off today.  CIF bids were indicated at +78H, off a few cents from Friday as the push seems to be about getting soybeans south of Cairo before corn.  Once the river closes in mid-December, corn will have to move to the Gulf by rail, or go to Hereford, the PNW or possibly the Atlantic.  An article from Bloomberg said farmers could see freight costs double as things need to move by rail instead of barge, or because the barges have to be loaded so light in order to avoid grounding in the low areas.  Other newswires said the US Army Corp of Engineers intends to speed rock blasting between Thebes, IL and Grand Tower, IL on 13% of the river rocks will begin January 3^rd.  This could allow light loaded barges to make it through the affected area.  Parties are still petitioning the President to release more water out of the MO-River, but no word on that yet.  Midday bids off the PNW looked a bit weaker as well with +100/108H bid for Dec/Jan.  +110/113H is available for Feb/Mar, but the majority of corn isn’t actually working to the PNW, but instead being spread to another domestic destination.  Most ethanol production margin calculations remain rather negative.  In export news, an Israeli firm is tendering for 115,000MT of corn for Jan 20 shipment.  COFCO (China’s state reserve buyer) and Ukraine have continued their talks about Ukrainian corn working into the country.  Most still seem to think Ukraine could ship their first cargo in December.  Supportive to corn is the ongoing rains in Argentina which are prompting acreage shift ideas from corn to beans.  Heavy rains will continue this week, but most see a drier pattern in the 6-10.  Brazil’s vessel lineup to load corn was seen at 1.942MMT vs. 1.593MMT a week ago.  Brazil’s corn planting progress is seen at 86.3% vs. 94.3% a year ago according to Celeres.  The summer crop is forecast at 37.1MMT and the winter crop at 38.5MMT.  One note of the COT report, commercial gross longs (end users) saw their position drop 67,286 contracts, or 16.1%, to 364,511 contracts in the latest week.  The specs have continued their buying, but that’s a big drop by the guys who actually use the corn.  March corn looks as though the $7.15-7.75 range will continue for the foreseeable future.  Farmers sell at the top and end users buy at the bottom.  Looks like selling straddles and strangles could be a safe bet, kind of like ADM has been doing as of late.

Wheat had a very similar session to corn, rallying overnight and early, only to give up gains and close lower despite some weekend tender business, dry HRW-wheat areas and more rain in Argentina.  Wheat bulls finally saw the export business they’d been waiting for when Egypt decided to buy 165,000MT of US-SWW at $337/MT FOB, and 115,000MT of US-SRW at $348-351/MT.  As supportive as Egypt taking US wheat was the fact the offerings from France and the Black Sea were somewhat limited.  Egypt did buy one cargo each from France and Romania.  While this is certainly supportive, it’s the higher pro wheats such as US-HRW which is so badly behind the pace needed to hit the USDA’s export forecast.  It would be very encouraging to see Iraq move on some US-HRW in its current tender, but based on the last trades, that might be a tall order.  Bottom line is it looks like importers are coming for US wheat now, but will need to continue to do so in order to keep prices elevated.  Australia’s harvest is moving past the halfway mark, especially in W-Australia where it is 61% complete.  Export inspections totaled 14.2mbu today, above last week’s 8.1mbu but below the 23.8mbu needed weekly to hit the USDA’s mark.  While not a new feature, interesting to note the cash spread on the spot floor in Minneapolis and KC.  12.0% HRW was quoted at +85/100H today, so using the offer side would put it at $10.06.  14.0% HRW was quoted at +82H which would put it at $10.13.  If these two classes of wheat are nearly the same price, but one offers you 2.0% more protein content, which would you rather own?  Would imagine mills will try working in more HRS were applicable.  COT data out Friday offered a couple interesting observations.  First, the net long position held by the funds in Kansas City wheat dropped to 26,735 contracts, the smallest since the week of June 26^th.  This despite commercial gross longs having been buyers for the past 5-weeks.  On the other side of the coin, Chicago wheat saw a big drop by the commercial gross longs (end users) last week.  That group shed 69,647 contracts (36% of their position) in the latest week.  This while specs bought roughly 10,000 contracts.  In Minneapolis wheat, funds pushed their net long position to 8,433 contracts, the largest since April 24^th.  Some very different actions across the three wheat exchanges.  Dry forecasts remain for the southern plains the next 10-15 days.  This should be a back burner issue for the near-term, but will be a talking point nonetheless.  A little discouraging to see us get the business we wanted and sell off, whereas all fall we rallied every time Egypt or a big importer bought wheat from a competing nation because they were that much closer to running out…

Soybeans managed a good close, finished up 12-17c, although they were off their highs by around 8c.  Without regurgitating most of the news outlined above, supportive influences continue to be the wet forecasts in Argentina, solid demand on both soybeans and products, and firm basis levels in both the US and SA.  Export inspections in the latest week were 51.1mbu vs. 46.6mbu the week before and the 19.1mbu needed weekly to hit the USDA’s mark.  Interesting to see 2.0mbu destined for China inspected off the Atlantic.  Consolidated Grain & Barge (CGB) sent out an email to customers today saying they will essentially stop taking barges north bound up the river by December 9^th.  Celeres released data today on farm marketings and planting progress with 50% of next year’s crop thought to be sold vs. 40% a year ago.  Plantings were seen at 83% vs. 88% a year ago.  They kept their soybean production outlook unchanged at 79.1MMT, but this is lower than the USDA’s 81MMT.  It was interesting to see the % of average precip totals for South America this morning.  One can definitely see the trouble areas and the really good areas.  Buenos Aires in Argentina is definitely a trouble area with their reporting stations showing 308% of normal precip during the month.  Other regions were anywhere from 158% (La Pampa), 796% (San Luis) down to 15% (Correnties).  Brazil wasn’t as saturated but did have some areas in the south which would have liked to have received more rain.  Most areas there were between 57-88% of normal.  Largest amount of open interest in January soybeans is at the $15.00 strike.  Option expiration is around 20 days away, so keep it on the radar.  One last note on the COT data, funds continued to liquidate their position last week, dropping their net long down to 73,150 contracts, the smallest since February 14^th.  Their positions are following the exact same trajectory as last year before the weather problems started.

6-10 South American weather forecast.  Drying up in the south where drier weather is needed.

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

www.chshedging.com

CHS Hedging, Inc.
The Right Decisions for the Right Reasons