Overnight Highlights from Country Hedging's Tregg Cronin 7-10-2012

Below is overnight highlight's from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index down 0.050 at 83.111; NYMEX-WTI down $0.21 at $85.81; Brent Crude down $0.82 at $99.50; Heating Oil down $0.0060 at $2.7430; Fat cattle are weaker, feeders firmer and hogs softer; Gold up $7.40 at $1596.50; Copper down $0.0015 at $3.4300; The Euro and Franc are a hair weaker while all other major currencies are firmer; Coffee is the only weaker Soft commodity this morning; S&P’s are up 4.25 at 1353.50, Dow futures are up 52.00 at 12,737.00 and Treasuries are weaker.

World equity markets are trading firmer this morning after the Eurozone drew up a Spanish aid blueprint for €100 billion bank bailout, a deal which is expected to see the first €30bn from the eurozone’s €440bn rescue fund.  The bailout will come with conditions such as stress tests for 14 of Spain’s largest financial institutions.  Other news included Chinese export and import growth both slowing in June, signs China could still be heading for a hard landing.  Exports rose 11.3% y/y, down from 15.3% in May.  Imports were up 6.3%, half of May’s 12.7%.  China’s trade surplus was $31.7 billion.  The other big news headline was word of PFGBest’s trading accounts being frozen on ideas customer seg funds could have been mismanaged.  Still in the early going for this story.

Before getting to specific weather, the National Climatic Data Center said the first six months of 2012 were the warmest of any year going back to 1895.  Drought now covers more than half the contiguous 48 US states.  The national temperature was 52.9 degrees through June, or 4.5 above average.  Rains in the last 24 hours were confined to the southern plains and delta where many states received 0.10-0.50” with localized amounts of 1.0”.  Nothing in the main corn belt states received rain.  Showers continue to work across the southern plains, Delta and SE-US this AM.  5-day forecasted precip is showing 0.4-0.8” totals for the Dakotas, nothing for IA/NE/WI/MO/KS, but IN/OH could still see some 1.0”+ total amounts.  The heaviest rains will fall in LA/AR/MS/AL/TN/GA/SC/NC with 1.5-6.3” possible.  That rain in IN/OH would be welcome.  Overnight 6-10 day maps are keeping the door open for more storms in the ECB on one model but not the other.  The Dakotas will be quiet.  The 11-15 has lots of rain in the central Midwest but needs verification.

Grains are trading weaker on a bit of profit-taking, led by wheat as the story remains a row crop one.  Between what looks to be already factored in crop condition ratings, and the PFGBest brokerage mishandling of customer accounts, both seemed like good enough reasons to set back a bit overnight.  Weather remains the dominant factor, and there are a bit better rain chances at the end of this week and in the extended maps, but this has been the case for much of June and July so far to no avail.  We are still trying to “realize” how small this crop actually is, and it doesn’t appear we’ve done that yet.  Already this morning, some are talking of national yields in the 130’s.  Today could also see some additional de-risking in front of tomorrow’s USDA report which could be bearish.

Overnight headlines included several from China which said summer grain output would hit a record 129.95MMT, up 2.8% y/y.  Of course it is.  June soybean imports were up 31% y/y and 6% from May at 5.62MMT.  Jan-Jun imports totaled 29.05MMT, up 22.5%.  In exports news, South Korean flour mills bought 26,500MT of US wheat from STX for Sept 15-Oct 15 shipment.  The wheat included 8.5-9.5% soft white at $301/ton, 11.5% HRW at $314/ton and 14.0% DNS at $368/ton, all FOB.  Japan is tendering this week for 131,379MT of US-wheat for Aug-Sep shipment.  According to yesterday’s COT report, speculators increased bullish bets on commodities by the most in 2-years.  Ethanol prices rose to the highest level in 7-months to $2.504 yesterday, thanks to rallying corn prices.

Open interest changes yesterday were rather impressive in corn, up 34,100 contracts with fresh money pouring in as the market hit limit up.  Wheat was up 710 contracts, beans up 890, meal down 3,420 and soy oil up 3,880.  The soybean stat is a bit concerning as the 40-60c rally clearly saw big changes in ownership, possibly from the commercials to the specs.  There were 220 redeliveries in Chicago wheat overnight.  Chinese beans were down 10.25c, meal up $5.20, corn down 2.50c and wheat down 3.75c.  Paris Milling wheat is down 1.1%, UK feedwheat down 1.08%, Paris Rapeseed down 0.58% and Canola is down 0.24%.  Corn export basis backed off at both export fronts and at most ethanol plants yesterday as demand continues to wane.  I’ll detail the COT in this afternoon’s writeup.

Call things weaker in the early going, but don’t rule out two-sided trade today.  Our limit up move yesterday clearly priced in part of the 8% drop in corn conditions and the 5% drop in soybean conditions.  That doesn’t mean we’ve penciled in the smallest crop size as little rain is on tap this week.  Still, we’ve likely earned some more choppy trade at least.  Review % sold ahead of tomorrow and especially with this latest brokerage debacle getting going.  USDA releases their WASDE at 7:30 CDT time tomorrow morning.

Trade as of 7:00

Corn down 6-8

Soy down 8-10

Wheat down 8-15    

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