Overnight Highlights from Country Hedging's Tregg Cronin 6-12-2012 USDA Report day!

Below are Overnight Highlights from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.101 at 82.414; NYMEX-WTI down $0.19 at $82.53; Brent Crude down $0.43 at $97.57; Heating Oil up $0.0058 at $2.6415; Livestock markets are mostly firmer; Gold down $5.70 at $1589.80; Copper down $0.0135 at $3.3315; The Yen is weaker but all other major commodities are firmer; Cocoa, Milk and Cotton are all firmer; S&P’s are up 3.50 at 1310.50, Dow futures are up 49.00 at 12,431.00 and Treasuries are softer.

Asian stocks were weaker while European indices are stabilizing this morning following yesterday’s meltdown in the US.  Heading into the 4:15 close yesterday, the Dow posted a huge outside reversal lower to settle off 142 points.  Bond yields for both Spain and Italy continue to quietly work higher, creeping near or above the 6.5% mark, but still below the unsustainable 7.0% level.  Overnight, UK industrial production posted its 14^th monthly fall, down 1% in April compared to the same month a year ago, while it was unchanged from March.  In the US today, we’ll get May import prices followed by the Federal Budget at 2:00 EDT.  The Dollar Index is still in a short term downtrend, but the intermediate and long terms trends are arguably still up.

Rainfall in the last 24 hours was heaviest in MO/AR/MS/AK/GA/SC which all had areas receiving 0.50-1.0”.  The heart of the corn belt also saw rains with IL seeing a general 0.25-0.50” although a few spots in SC-IL did see 1.0”.  IN was almost completely dry while OH saw anywhere from a trace to 0.50”.  Storms are moving across the southern plains and Dixieland this AM.  5-day forecasted precip maps are showing heavy rains impacting places NW of a line from Kansas City to Green Bay with areas in IA/NE/MN seeing as much as 2.9” the next several days.  The southern plains will also be seeing sizable chances of rain, but everything SE of that line will be dry, including MO/IL/IN/OH/MI.   The European model is holding out chances for 0.50-1.00” to fall in the OH-River Valley towards the beginning of next week, but other models are more timid.  Temps should mainly be in the 70’s and 80’s with a few 90’s.  The 11-15 is putting a disturbance in the central/southern corn belt, but a bit far out to get much confidence.  Weather remains unsettled for the central belt.

Grains are trading in similar fashion to the way they closed yesterday with corn weaker, soybeans and wheat firmer.  This is definitely the feeling in the trade heading into the USDA reports that we could get something bearish on corn (even though the average estimates point towards cuts to carryout), while soybeans and wheat could receive supportive numbers.  The breakdown in the outside markets late yesterday helped knock us off our intra-day highs as did the storms which rolled through the central and western corn belt.  When IA gets rain, people assume the entire crop just got better.  Last night’s FOB comparative (attached) does illustrate some concern on the corn side of the ledger.  Without freight, our corn price is $30-40/MT over Argy and Brazil, and probably worse on Ukraine.  Fortunately, our soybean prices remain very competitive with Brazil, and while Argentina is better by $4-9/MT, their ongoing labor disputes make the issue much less black and white and is currently slowing grain to the ports.

Data from Australia continues to confirm a robust export program, as the Australian Bureau of Statistics said the country shipped 2.36MMT in April, the second largest amount of wheat moved in a single month over the last nine years.  This was up 15% from March and 40% y/y.  Dryness in W-Australia is still a concern for winter grains being seeded at present.  South Korean mills bought 23,800MT of US-DNS, SW and HRW for Aug 15-Sep 15 shipment from LD.  Prices were $247-324/MT FOB.  From Beijing, China’s 2012 wheat output is expected to fall 1.63% from last year to 109.5MMT as rainfall during flowering and disease cut yields.  This is in stark contrast to the CNGOIC which said output would rise 2.02% to 120.3MMT.  Crop conditions fell much more than analysts expected last night in the US.

Open interest changes saw liquidation in about everything with wheat down 2,010, corn down 10,270, soybeans down 130, meal off 1,730 and oil down 7,260.  Soybeans continue to show very little open interest change which would suggest ownership is continuing to change hands.  While weaker yesterday, spreads have been on a firming trend and basis remains above delivery equivalence, implying commercials have a reason to own soybeans.  FWIW, crop scout Dr. Michael Cordonnier cut his national corn and soybean yields last night thanks to sharper than expected declines in the national condition ratings.  He is now 161bpa on corn and 43.0bpa on soybeans.  He also made the comment soils are drier now than they usually are the 3^rd week of August based on an 11-year soil moisture index.

Average estimates for this morning’s report are 11/12 carryout on corn at 828mbu, soybeans 197mbu and wheat at 757mbu.  12/13 ending stocks are seen at 1,740mbu (down 140mbu) on corn, 147mbu on soybeans and 728mbu on wheat (down 7mbu).  Winter wheat production is seen being trimmed slightly.  Argentine production should see cuts on both corn and beans while Brazil is expected to rise a bit.  Trade will be open at 7:30 in both the pit and electronic when the numbers are released.  More at 7:30 CDT.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax
www.countryhedging.com
Country Hedging, Inc.
The Right Decisions for the Right Reasons