Overnight Highlights from Country Hedging's Tregg Cronin 7-12-2012

Outside Markets: Dollar Index up 0.181 at 83.749; NYMEX-WTI down $1.00 at $84.81; Brent Crude down $1.18 at $99.05; Heating Oil down $0.0416 at $2.7202; Cattle are lower, hogs are firmer; Gold down $11.40 at $1564.10; Copper is down $0.0510 at $3.3965; The Yen is firmer, but all other major currencies are weaker; Softs are mostly weaker; S&P’s are down 10.25 at 1326.00, Dow futures are down 87.00 at 12,449.00 and Treasuries are a bit better.

Grabbing headlines this morning is the weakness in the EURUSD cross which has pushed the euro down to the lowest level since June of 2010 at 1.2189, while the US Dollar makes 2-year highs.  Nice if you’re going to Europe in the next year.  The other striking thing is how investors are still searching for short term safe havens.  German, Dutch and Swiss 2-year treasury yields are now negative, meaning you’re going to pay those governments interest to hold on to your money just so you know you’ll get it back in two-years.  After early gains, Spanish 10-year yields are back to 6.69% and Italy at 5.87%.  The data out of Europe this morning was factory orders which showed a 0.6% rise in May from April, but France and the Netherlands were weaker than expected.

Rains have fallen across the Dakotas in the last 12 hours, and continue to work East across both states this morning.  Totals so far look like a trace to possibly 0.25” with heavier amounts in the NE portion of both states.  Otherwise, additional rain fell across the Delta, putting the 4-day total at 0.75-3.0” in most areas.  5-day forecasted precip is showing continued rainsa cross the Delta with the northern tip of this system reaching up to S-IL/S-IN/OH and bringing anywhere from 0.50-1.50” in the heaviest areas.  ND and N-MN could also see more rain by the end of the weekend.  The 6-10 day models remain highly divergent with the American showing widespread rain across the Midwest, but the Euro limiting rains to the Delta/TN/KY with some chances in the far NW-Corn belt, but nothing organized.  Continue to stick with the euro until proven otherwise.  The 11-15 shows rains in the central Midwest, bringing rains to most corn belt areas.  Temps should remain above normal throughout the period with warmer temperatures in the upper-Midwest.

After the incredibly volatile session yesterday which saw prices hit lows and then rally slightly into the close, that momentum is carrying into the overnight and early morning session with corn up double digits, wheat up around 7-9c and soybeans posting very slight losses.  It looks clear the selloff was overdone yesterday, especially as the rumors Sec Vilsack was going to address the RFS mandate proved to be false, but the technical damage had already been done.  Fortunately, markets are focusing on the bullish fundamentals this morning.  A further correction shouldn’t be ruled out as these markets can easily set back further while keeping the uptrend in place, but these markets should remain supported by fund interest and eager end users to extend coverage on any big break.

Overnight headlines included Pakistan resuming wheat exports after almost a year as its grain becomes internationally competitive.  Small volume were sold for spot shipments to Malaysia and Indonesia.  13.0% milling wheat is being sold around $295-298/MT C&F.  Pressuring a bit to soybeans was China selling 390,090MT of soybeans from government reserves in an auction Thursday to sharply better demand according to CNGOIC.  The government sold 379,488MT at CNY 4,005 ($17.11/bu) in provinces with a heavy crush presence.  This is the function of the market: get China to sell its reserves down and stop buying US beans.  We’re not at that price yet.  Strategie Grains downwardly revised its EU 12/13 grain harvest by 2.4MMT to 278.8MMT.  Corn and wheat were both cut.

From Morocco we learn their wheat crop has dropped 40% y/y to 5.1MMT due to drought.  Imports are expected to pick up.  In tender results, Japan bought 131,379MT of US milling wheat from the US for Aug 21-Sept 20 shipment.  Our favorite investment bank ($GS) raised their price forecasts on corn to $6.90/bu, their wheat forecast to $7.70/bu and soybeans to $16.25 due to drought concerns.  Their corn yield estimate is now 143.5bpa.  There were 25 Chicago wheat re-deliveries overnight as well as 462 soybean oil.  Open interest changes during yesterday’s session included an increase of 17,070 corn, 16,440 beans, 2,120 meal and 2,370 oil.  Wheat was up 6,810.  Chinese beans were down 41c, meal down $13.10, oil off 122c, corn down 1.50c and wheat down 8.50c.  Paris Milling wheat is up 1.42%, Rapeseed down 0.88%, Canola down 0.83% and UK feed wheat is up 0.60%.

Call things better to begin with today as cooler heads prevail and the bullish fundamentals matter.  Rains this weekend will be falling in areas which could help the soybeans still, but questions have to be raised about the corn, and the WCB crops don’t look on tap for a soaking rain just as temperatures build back above 90 degrees.  Yesterday’s price action caught a lot of people off guard, so make sure you level marketed is where you want it based on your production prospects.

Trade as of 7:05

Corn up 11-14

Soy up 2-5

Wheat up 7-9

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