Morning Comments – February 09

Markets continued to weaken overnight with grains, stocks and crude all under pressure.

In grains, prices continued to be pressured following Monday’s setback as traders await fresh data from USDA in their monthly Supply and Demand report. The report will be released at 11 am CDT today, and below are the expectations going into the report.

US Ending Stocks (in million bushels)

  Expected Range USDA Jan
Corn 1,809 1,752-1,852 1,802
Soybeans 445 425-470 440
Wheat 947 937-975 941

World Stocks (in million metric tons)

  Expected Range USDA Jan
Corn 208.25 203.5-210.0 208.94
Soybeans 78.97 76.36-81.0 79.28
Wheat 231.48 229.66-233.0 232.04

 

Tunisia’s state grains agency has issued an international tender to purchase 67,000 MT of soft milling wheat. China is on Lunar Holiday this week and will be absent from the market.

In outside markets, stock equity futures were close to another 1% loss to start the day.  Tokyo shares fell sharply in Tuesday trading, following tumbling markets across Europe and the US. The Nikkei 225 closed down 5.4% or 918.86 points at 16,085.44. It was its worst one-day fall since mid-2013.

 

Morning Comments – February 08

Grains were lower overnight sinking to fresh lows on the month, while stock futures and crude oil started the day with big losses.

Overnight, Ukraine raised its grain export forecast for the 2015/16 season to around 37 MMT from 36. The increase comes from rising corn demand and expectations of a big corn crop next year. Wheat growers who suffered crop losses as a result of a severe drought last year and frost in winter would likely reseed much of the affected fields with corn. The drought has put the harvest across as much as one third of Ukrainian farmland at risk of poor yields.

In Argentina, the most important rainfall of the week will occur today and Monday hitting Argentina’s driest region from eastern Cordoba through central and southern Santa Fe northeastern Buenos Aires, Uruguay and southernmost Corrientes. Rainfall in these drier areas will range from 0.80 to 2.50 inches and local totals over 4.00 inches. Two other significant rain events are slated for summer grain and oilseed crop production areas through the balance of the next two weeks. The first event occurs Friday into Sunday, Feb. 14, and the second event occurs Feb. 16 -18. If all three rain events occur as advertised corn and soybean production areas will be plenty wet and poised for good production potentials.

In outside markets, European stocks slid to fresh 16-month lows dragging down US stock futures and crude oil. Overnight, China’s foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows. China’s foreign reserves fell $99.5 billion to $3.23 trillion in January, the lowest level since May 2012, central bank data showed, but higher than the median forecast of $3.20 trillion from economists surveyed in a Reuters poll. The size of the drop was second only to the $107.9 billion fall in December, the largest monthly decline on record. The central bank has intensified efforts to prop up the yuan after it staged a surprise devaluation in early August.

Weekly Cash Comments

Cash Commentary–

Soybean basis came under pressure this week giving up 2 cents a bushel, while corn basis continued to flat line at unchanged on the week.

Corn basis, although on average across the country it was unchanged for the week, did find some modest strength on the Eastern Seaboards well as in parts of Nebraska and South Dakota as a massive blizzard midweek shut down grain flows. Corn piling continues to be fairly prominent still in the Western Cornbelt and will act as a constraint on any significant basis improvement. At the Gulf, basis levels slipped 4 cents a bushel although river terminals were more stable only giving up 1 cent a bushel. At ethanol plants, corn basis was unchanged for the week.

For soybeans, basis levels fell under weakness this week as higher futures brought on more farmer selling and a 10 cent loss at the Gulf export market signaled a significant slowing in the US export program. River terminals lost 5 cents a bushel on average although losses of 10 to 15 cents were fairly common at some locations. At soy plants, basis levels were unchanged on average, although plants in the Southeast were up 5 to 10 cents a bushel.

Futures Commentary-

Grain prices found some modest strength this week with soybeans leading the complex higher on a 7 cent advance and corn gained 3. Wheat was unchanged for the week.

This week’s EIA’s weekly ethanol report showed production off 2,000 BPD to 959,000 bpd, while stocks climbed sharply by almost 1 million barrels to 22.36 million barrels on the week. Crude oil was up sharply on Wednesday gaining $2 a barrel on the US dollar plunge as well as news that Venezuela was looking to enter into talks with other nations to reduce output. However, the warning flag on oversupply continues to get deeper in the red as EIA crude oil stocks showed that weekly US crude oil inventories were up 7.8 million barrels when analysts only expected a 4.8 increase. Likewise, gasoline stocks ballooned by 5.9 million barrels compared to only a 1.7 million barrel increase that was expected. Weekly export sales topped 1 MMT this week, beating analyst expectations.

In soybeans, weekly export sales were disappointing amounting to a net reduction for the week in sales after China’s big cancellation of 395,000 MT. Brazil’s Conab pegged the soy crop at 100.9 MMT, which was lower than their previous estimate of 102.1 in January, but still slightly higher than USDA’s estimate of 100.0. Weather models point to favorable growing conditions as most of Argentina’s driest areas will get adequate rains next week. Production potentials will likely be restored near normal and the bottom line for Argentina is still a very good production year. In the meantime, Brazil will experience a favorable mix of rain and dry weather during the next two weeks supporting good crop development for nearly all of the nation.

For wheat, weekly sales were also disappointing coming in at 66,000 MT versus trade expectations ranging from 200-00,000 MT. Wheat conditions in key growing states are trending fairly well as compared to last year. States in the Plains to Western Cornbelt are posting better than last year condition ratings with the exception of Nebraska. In Oklahoma, the wheat crop is rated 74% good-to-excellent, which although lower than last month’s reading of 77%, is still highly improved over last year’s condition of only 41%.

 

Morning Comments – February 05

Grain markets were mostly quiet overnight with corn and wheat posting fractional changes while soybeans advanced around 3 cents a bushel. In outside markets, the US dollar inched higher after being routed in the last two trade sessions while crude oil and stock futures also were quiet, posting modest gains.

Thursday, Stats Canada estimated all wheat stocks there at 20.7 MMT versus expectations of 21.8, while canola stocks were pegged at 12.1 MMT up from expectations of 11.5. Overnight, Egypt had only 4 offers on its wheat tender as their quality restrictions continue to impede grain companies in offering supplies.

For South America, weather models point to favorable growing conditions as most of Argentina’s driest areas will get adequate rains next week. Production potentials will likely be restored near normal and the bottom line for Argentina is still a very good production year. In the meantime, Brazil will experience a favorable mix of rain and dry weather during the next two weeks supporting good crop development for nearly all of the nation.

The wait for U.S. monthly jobs numbers steadied stock markets on Friday and allowed the dollar to recover after what has so far been its weakest week in more than six years. After posting a strong number of 292,000 in December, January Non Farm Payroll is expected to cool down within the range of 170K to 245K while the unemployment rate is expected to hover in between 4.9% to 5% range. The actual report released at 7:30 am CDT this morning showed weaker than expected payroll numbers of 151,000 but the unemployment rate ticked down to 4.9%. Silver futures continued to inch higher overnight as weakness in the US economy is spurring prices to reach their highest mark since November.

Morning Comments – February 04

Grains were higher overnight with corn and wheat up 2 cents while soybeans were up 4 cents. In outside markets, the US dollar continued to move lower giving up 0.5% after losing 1.6% yesterday, which is supportive for grains. Stock futures were drifting lower as was crude oil. Silver and gold futures were still on the rise as economic risk leads to investors turning to safe havens of precious metals.

On Wednesday, EIA’s weekly ethanol report showed production off 2,000 BPD to 959,000 bpd, while stocks climbed sharply by almost 1 million barrels to 22.36 million barrels on the week. Overnight, Brazil’s Conab pegged the soy crop at 100.9 MMT, which was lower than their previous estimate of 102.1 in January, but still slightly higher than USDA’s estimate of 100.0. Conab sees Brazil’s corn crop at 83.3 MMT vs 82.3 MMT in January and USDA at 81.5 MMT.

Algeria’s state grains agency OAIC bought between 450,000 MT and 500,000 MT of optional-origin milling wheat in a tender this week, European traders said on Thursday. OAIC paid around $178 a MT, cost and freight included, for the wheat, which was likely to be sourced in France and also partly in the UK.

Crude oil was up sharply on Wednesday gaining $2 a barrel on the US dollar plunge as well as news that Venezuela was looking to enter into talks with other nations to reduce output. However, the warning flag on oversupply continues to get deeper in the red as EIA crude oil stocks showed that weekly US crude oil inventories were up 7.8 million barrels when analysts only expected a 4.8 increase. Likewise, gasoline stocks ballooned by 5.9 million barrels compared to only a 1.7 million barrel increase that was expected.

The US dollar was back on the defensive in early trade in Europe after a collapse in expectations of a further rise in U.S. interest rates this year drove its biggest daily fall in over two months on Wednesday. Against a basket of currencies, the greenback fell another 0.5 percent to 96.796, it’s lowest since early November. The euro hit a 3-1/2 month high of $1.1161 EUR=EBS, extending its gains from an explosive sell-off a day earlier.

WEEKLY EXPORT SALES

Actual Expected Last Week
Corn 1,129 800-1,000 817
Soybeans -43 400-600 647
Wheat 66 200-400 294

 

 

 

Morning Comments – February 03

Grains dipped lower overnight as the slog thru choppy trading continues. S&P futures and crude oil were modestly higher after Tuesday’s sharp sell-off.

Yesterday saw some fresh highs in soybeans with front-month March trading as high as $8.89, its highest price since mid-December, before backing off into the close at $8.85. Weather models overnight increased the chance of rain for Argentina next week. The current week’s weather is expected to be dry, so next week’s rain forecast will be important in preventing crop stress going into mid-month.

For corn, trade continues to be extremely limited between $3.73 and $3.64 with most of the volume in the past two weeks around the $3.70 mark. Today’s ethanol report is expected to show a modest recovery in weekly production as well as higher ethanol stocks after last week’s sharp drop in both measures. Ethanol margins have improved in the past few weeks, but are likely hovering below break-even when all costs are considered. Yesterday, ADM posted weaker than expected earnings, blaming ethanol as one of the limiting factors in company profits.

In crude oil, yesterday the API reported a +3.8 mil build in crude inventories, +6.6 mil in gasoline, and +0.4 mil in distillate. This morning, U.S. private employers added 205,000 jobs in January, above economists’ expectations, a report by a payrolls processor showed giving stock futures a modest lift going into the opening bell.

Morning Comments – February 02

Grains continued to be tied limited overnight, while outside markets were under pressure yet again.

After the close yesterday, USDA’s monthly industrial use reports showed soybeans crushed in December were 167.0 MB versus trade expectations of 167.3 MB. For ethanol, 444.5 MB of corn was used for ethanol in December, up from November’s total of 435 but off from last year’s December use of 455.9.

In other news, wheat conditions in key growing states are trending fairly well as compared to last year. States in the Plains to Western Cornbelt are posting better than last year condition ratings with the exception of Nebraska. In Oklahoma, the wheat crop is rated 74% good-to-excellent, which although lower than last month’s reading of 77%, is still highly improved over last year’s condition of only 41%.

In other wheat news, Egypt announced a tender to buy more milling wheat yesterday, but overnight they canceled the tender citing a lack of offers in light of their import quality rules. Overnight, Taiwan’s maize industry procurement association MFIG purchased 65,000 MT of corn to be sourced from the Unites States in an international tender which closed on Tuesday.

Argentina weather is expected to be mostly favorable during the next two weeks with adequate rains easing dryness. The greatest relief is expected Sunday into Monday of next week when rain will be most widespread in the driest areas. Some showers are expected Thursday into Saturday, but they are not likely to be well enough distributed to provide relief for all of the dry region.

U.S. crude futures were off sharply on Monday, losing $2 a barrel as weak economic data from China reversed a four-day rally from last week and an OPEC source undermined chances of an emergency meeting to stem the decline. Those same forces continued to push crude lower in the overnight and are weighing on S&P futures.

Morning Comments – February 01

Grains lost ground overnight after closing sharply higher on Friday. Likewise, crude oil and S&P futures were deep in negative territory to start the week.

On Friday the CFTC showed non-commercials slashed their net short position in CBOT corn by 74,000 contracts in the week ending Jan. 26, to 129,051.   Non-commercials cut their net short in CBOT wheat by 19,000 contracts, to 91,973, and expanded their net short in soybeans by 5,400 contracts, to 82,286.

In overnight news, Algeria was in the market, issuing a tender for optional-origin milling wheat, and a group in Israel is tendering for a 100,000 MT shipment of optional origin corn. Russian wheat export prices rose last week as the rouble strengthened, making grain less competitive on dollar-denominated global markets. Black Sea prices for Russian wheat with 12.5 percent protein content were at $182 a MT, up $2 from a week earlier.

Argentina’s weather outlook is wetter today relative to that of Sunday. Rains are expected late in the week with scattered showers over the weekend, and more significant rain early to mid-week next week. Brazil is still seeing areas of heavy rain to slow harvest, but areas of the center south and northeast had some dryness.

Oil found itself on the defensive as economic data from China showed the manufacturing sector contracted at the fastest pace since 2012. Also, last week’s price rally was driven by talks of an output reduction deal among OPEC and Russia, but that action seems less likely to happen. A senior OPEC source told a Saudi Arabian newspaper it was too early to talk about an emergency meeting of the Organization of the Petroleum Exporting Countries. OPEC member Iran, which last month was allowed to return fully to markets after years of sanctions, is so far unwilling to participate in cuts. Partly because of Iran’s return, OPEC output has jumped to 32.6 million barrels per day (bpd), its highest in years, adding to supply of more than 1 million bpd in excess of demand which has pulled prices down 70 percent since mid-2014.

Weekly Cash Comments

Cash Commentary-

Grain basis moved lower this week as a two-week recovery in the futures market seemed to run into headwinds. Farmer selling, especially in the Western Cornbelt has put basis on the defensive.

Corn basis was off 0.6 cents a bushel on average this week across the US thanks to increased farmer sales. Ethanol plants saw the biggest losses with a 1.6 cent a bushel drop with losses of 3 to 5 cents a bushel fairly common across IA, NE & MN. Meanwhile, river terminals had some stability this week as basis at the Gulf bids posted a 2 cent advance.

For soybeans, average basis levels were off 1-cent a bushel and unlike corn, is starting to see some weakness in the export market. Gulf bids were off 1 cent a bushel and upstream river terminals backed off on basis by 1.5 cents this week. Soy plants, which had been weaker the previous week, were mostly unchanged this week.

 

Futures Commentary-

Grains started the week in positive territory but ended the week on a lower footing. Since the Jan 12 crop report, prices have been plagued by directionless, range bound activity, but this week saw some indications that prices may be due to break out to the downside of the range.

Wheat found support early in the week when news out of Russia suggested they may act to curb wheat exports as hyperinflation and a weaker rouble are causing wheat exports there to surge. But, by the end of the week, the Kremlin’s policy stance took an about-face, as leaders hinted they would instead look at ways to reduce wheat export taxes and keep wheat exports moving strong into the world markets. As a result of this news, wheat bounced off of its short-term high of $4.88 basis the March moved back to the $4.70 area.

In corn, large export deals to drought stricken India went to Ukraine this week as the US continues to struggle with the lack of a competitive price thanks to the strong US dollar. Ethanol production was off 2% this week versus last week and reached its lowest reading in 3 months. Ethanol margins are likely in a 10-15 cents a bushel loss when including all costs, although this figure is up since the start of the year with ethanol prices rebounding. Abengoa Energy announced they would sell their 6 first generation grain ethanol plants in the US as part of a bankruptcy deal with creditors. Corn is trading in a narrow range with $3.72 overhead resistance and the gap at $3.64 providing support.

For beans, there is some concerns about dryness in Argentina, and rains in Brazil are keeping the harvest there from getting underway. At the end of the week, USDA announced China had canceled 395,000 MT of US soybeans it had committed to earlier in the season. This sent beans lower by 10-cents. Support is around $8.70 for March beans with overhead resistance at $8.88.

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Morning Comments – January 28

Grains moved lower overnight as the lack of fresh news keeps a lid on this rally off of Jan 12th lows. In outside markets, S&P futures were on a positive trajectory to start the day following yesterday’s 1% loss while crude oil was also in positive territory with modest gains.

The EIA ethanol report on Wednesday showed ethanol production declined -2.2% to a 961,000 bbl/day. Ethanol margins are likely in a 10-15 cents a bushel loss when including all costs, although this figure is up since the start of the year with ethanol prices rebounding. Abengoa Energy announced they would sell their 6 first generation grain ethanol plants in the US as part of a bankruptcy deal with creditors. Corn is trading in a narrow range with $3.72 overhead resistance and the gap at $3.64 providing support.

In beans, Brazil’s harvest will begin in the next few weeks although weather delays are an issue right now. Mato Grosso Brazil is still wet for three days then the rain moves south where it could disrupt early harvest in Parana. The southeastern 20% of Argentina to be dry over the next two weeks. Soybeans moved off of yesterday’s higher close, but the range of $8.88 and $8.70 should be viewed as key resistance and support.

Wheat came under pressure yesterday as Russia said they would be considering reductions in wheat export taxes. Russia plans to hold a meeting on Friday to further discuss export controls for ag and a decision is expected early next week. Support is around $4.66 and overhead resistance at $4.88.

Stocks came under pressure yesterday following the Fed announcement of no interest rate change (not surprising), but they also suggested they have not ruled out an interest rate hike in March. Crude oil continues to try to move higher, as it has posted a $4 a barrel advance off of the 13-year lows set last week. However, it faces a stuff headwind with economic data continuing to purport growing inventories of crude.