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.

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.

Morning Comments – January 27

Grains were sluggish yet again overnight with wheat falling after solid advances in the past four days. Corn also drifted lower while soybeans posted a slight advance. In outside markets, the see-saw patterns continued with S&P and crude oil futures making relatively big declines before morning trade opened.

In Argentina, concerns over dry weather are starting to mount. An analyst for the Rosario Grain Exchange said parts of the Buenos Aires province is burning up and yield loss is possible. Two weeks ago, the Rosario exchange estimated the corn harvest for 2015/16 would be 23.8 MMT, up from 20.2 MMT in the previous season, due to a larger planting area and higher yields. The area hit by drought represented 8% of the main agricultural area of the country, which is also a top global exporter of soy and wheat. Looking ahead, World Weather Inc sees another ten days to two weeks of net drying in Argentina in the provinces of Buenos Aires, Sante Fe and Entre Rios.

Wheat was pressured overnight as Russia’s ag minister proposed to policymakers that the wheat export tax be eliminated or reduced, but would impose taxes on corn and barley exports. This is a seemingly different policy stance when earlier in the week Russia wanted to restrict all grain exports to curb inflation.

Oil prices bounced higher on Tuesday after senior OPEC and Russian officials stepped up vague talk of possible joint action to eliminate one of the largest surpluses in modern times, but any resolution seems unlikely. Meanwhile, U.S. crude stocks rose by 11.4 million barrels last week to 496.6 million, the American Petroleum Institute said, topping analyst expectations for an increase of 3.3 million barrels. That said, oil bulls are gradually starting to emerge, with this month’s drop below $30. The options market shows traders are buying up protection against a rise to at least $40 by the end of the year, and speculators have increased their bullish bets on the price through the futures market.

Morning Comments – January 26

Grains were modestly weaker overnight, while outside markets for the S&P and crude oil were modestly higher following Monday’s sell-off.

In weather, showers exited southeast Buenos Aires, northeast Cordoba, northern Santa Fe, northern Entre Rios, and minor production areas in northeast Argentina in the past day, with additional showers late Wednesday into Friday and next Wednesday/Thursday. While each of these events has the chance to reach up to 1/2 of the corn/soy, the best rain chances are likely to remain in northern/western areas. As a result, dryness concerns (focused on 20 to 25% of corn/soy) in central Cordoba and bordering sections of Santa Fe as well as central/northeast Buenos Aires should continue and potentially threaten minor reductions in yield potential, although heat has subsided.

China imported a record volume of corn and corn substitutes, including distillers’ dried grains (DDGS) and sorghum, in 2015 driven by cheap overseas prices, but imports this year could fall by more than 50 percent, traders and analysts said. China shipped in a record 6.82 MMT of distillers’ dried grains (DDGS) in 2015, a rise of 26 percent from the year before, official customs data showed on Tuesday, as feed mills replaced expensive domestic corn with the cheaper dried grains. However, DDGS imports to China, the world’s top buyer of the grain, a by-product of corn-based ethanol, are expected to decrease by more than 50 percent this year. If so, this could have important implications for US DDGS and resulting ethanol margins, as China accounts for half of all US DDGS exports.

Outside markets were relatively stable following Monday’s sell-off in crude oil and stocks. The Federal Reserve’s two-day policy meeting begins later in the day.   Investors will be parsing the U.S central bank’s message to determine what, if any, effect volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown will have on the Fed’s previously stated intentions to continue raising rates this year.

 

Morning Comments – January 25

Grains were mixed overnight as wheat found modest support advancing 3 cents, while soybeans were off 3 cents. Corn drifted lower in relatively stable trade in the night session. In outside markets, crude oil started the week with a $1 a barrel loss while S&P futures were modestly lower.

Soybeans saw pressure from good weather prospects in South America. Dry weather across N Argentina (hot too) and S Brazil will give way to wetter conditions over the next 5-14 days. N and NE Brazil have meanwhile seen 125-300+% normal rains with drying beginning next week. Last week (ending Jan 21) saw vegetation deteriorate across much of Argentina and parts of S Brazil. Improvement was seen in Northern Center-West and much of Northeast and parts of Southeast Brazil. Widespread moisture during the next 7-10 days will help numerous areas.

For wheat, prices found support from a cold weather snap in Russia and Ukraine. However, with most areas seeing adequate snow cover the risk to the crop seems limited. Also providing support is a report that Russia’s Ag Minister may be considering limiting grain exports over concern about the country’s inflation and declining rouble.

In corn, India bought 250,000 MT of corn from Ukraine. Technically, the corn market seems to be holding up on the recovery from the $3.50 area. The corn market held its gap last week at $3.64 as we try to push through the $3.70 area. This should give us a bit more strength with a test of the December trade from $3.75 to $3.80. Expect that to satisfy this recovery. Weekly charts also show the $3.75 area key overhead. However, we need a close under $3.63 to shift back down.

For crude oil, prices started the week on a down note as Iraq’s oil ministry said oil output had reached a record high in December. Its fields in the central and southern regions produced as much as 4.13 million barrels a day, the government said.

Morning Comments – January 22

Grains firmed in the overnight session with soybeans leading the complex higher on 4 cent advances in early morning trade. Outside markets were firm as well with oil bouncing off its lows on a $1.50 a barrel advance and S&P futures were up 1.3%.

Export tender activity has heated up of late although many of the deals seem to be getting done without US participation. Notably, Egypt’s wheat deal yesterday for 235,000 MT was won by Romania, France and Russia. Prices between US and French wheat have been diverging this week thanks to the Euro’s slide against the US dollar. Current FOB prices in France are $32/MT cheaper than the US, which compares to only a $25/MT discount this time last month. India also announced the results of its corn tender which ended up going to a South Korea trading firm.

In South America, the next 7 days look to bring excessive moisture in parts of Northern Brazil while Argentina will see warm and dry weather. For the 7 to 14 day forecast rain should return to northeastern Argentina and southern Brazil boosting soil moisture and ending recent drying.

U.S. oil prices rebounded more than $1 a barrel from 12-year lows on Thursday, posting their biggest daily gain this year as rallying financial markets gave some bearish traders reason to take profits on record short positions. U.S. crude briefly vaulted back to $30 as hopes for easier monetary policy from Europe fueled a recovery in European and U.S. stock markets. Even bearish EIA crude inventory data which showed a 3.8 million barrel increase in stocks versus a 2.8 increase expected didn’t stymie the rally. Instead, the report triggered buying among traders who had feared the figures could be even worse. Still, few traders expected a quick recovery from this year’s 20 percent slump, with oil under pressure from a deepening supply glut and signs of economic weakness in China.