Overnight Highlight's from Country Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.452 at 79.507; NYMEX-WTI down $0.27 at $91.71; Brent crude up $0.47 at $108.67; Heating Oil up $0.0154 at $3.0594; Cattle are weaker and hogs firmer; Gold down $7.00 at $1762.00; Copper down $0.0715 at $3.7500; The Yen is firmer while all other currencies are weaker; Sugar is firmer this morning but all the other softs are weaker; S&P’s are down 4.00 at 1455.75, Dow futures are down 34.00 at 13,536.00 and Treasuries are mostly better.

Economic data from around the globe last night was fairly negative, setting up the stage for a big day of economic reports here in the US.  Last night, China’s flash preliminary-PMI climbed to 47.8 in September from 47.6 in August.  While better than the previous month, it remains below the economic expansion/contraction line at 50.0.  Japan also confirmed the reasoning behind their latest round of stimulus Tuesday night when they reported exports down 5.8% in August y/y, and imports down 5.4%.  Euro economic data wasn’t much better with their PMI falling to 45.9 in September from 46.3 in August.  The Euro is currently down 0.87%.  In the US today we have jobless claims, the Preliminary PMI, Philadelphia Fed and Leading Indicators.  Note the Dollar strength this morning.

Rains in the last 24 hours were confined to the Great Lakes region where trace to 0.25” amounts fell in WI/MI.  Radar is mostly quiet this morning aside from a small system working across C-IL/N-IN. The 5-day forecasted precip map is mostly unchanged from yesterday with the WCB dry the next 5-days while precip will fall in S-MO/S-IL/IN/N-OH/MI with heaviest amounts in the northern Great Lakes at 0.75-1.25”.  The ECB areas should see 0.30-0.60” in general.  NOAA’s latest extended look still shows much below normal precip the next 10-days for the corn belt as well as cool temperatures in the East, but a warming pattern sitting in the Rocky Mountains and moving East.  The coolest day of the next 10 should be Saturday where widespread frost chances are likely.  South America appears to be catching some showers ahead of planting season which begins in earnest in October.  No change to the Australian forecast with dry weather the next 7-10 days while any showers which do fall look to be 0.10” or less.

In-keeping with the choppy nature of the last several sessions, our Ag markets find themselves under a bit of pressure this morning, but clinging to the top-end of yesterday’s gains.  There isn’t a heavy amount of overnight news, and hedging activity last night was the lightest in recent memory, so the general theme from earlier in the week seems to hold: large spec positions moving for the exit as harvest ramps up and yield reports continue better than expected.  Most are still calling for a lower corn yield on the October report, but more analysts are arguing for an uptick in the soybean yield.  A                 Bloomberg article seemed to sum up the funds attitude towards commodities as of late quite well: Fed Stimulus Fading as Forecasters Say Best is Over.  Demand for paper can decline while physicals rise.  Ukraine’s Ag Minister said in a story last night Ukraine won’t need to ban exports this year as sales slow in November when harvest rises.  “We will be a stable supplier.  Our wheat exports won’t exceed 5MMT.”  Some privates have them at 6.5MMT currently. 

Overnight headlines updated us on Lock and Dam 27 north of St. Louis which remains shut down due to damage from the drought.  As of Wednesday morning, nearly 60 tugboats and more than 400 barges were caught up in the logjam.  This is undoubtedly part of the firmer CIF basis on corn and beans this week.  In export news, South Korea’s MFG has issued a tender for up to 140,000MT of corn for delivery in February.  Japan bought 101,158MT of milling wheat from the US and Canada in a regular tender with 82,103MT coming from the US.  Yesterday, the UN’s FAO forecasted Brazil’s 2012 corn harvest at 72.8MMT, up 29% from a year earlier and a new record.  This is directly correlated with the lack of US exports the past 6-weeks.  As noted in last night’s afternoon comments, there are four more vessels set to discharge in Wilmington, NC between Oct 3-22 carrying Brazilian maize.  Expect it to continue.  Bloomberg also reported China overtook the US as the world’s largest imported of Ag products, going from $108.3 billion in 2010 to $144.7 billion in 2011.

Open interest changes yesterday were fairly light with wheat up 340, corn up 2,850, soybeans up 340, meal down 2,010 and soy oil down 2,080.  The lack of open interest changes during moves which are pretty exaggerated would suggest a fair amount of ownership continues to change hands.  Early in the week it seemed to be funds dumping into the hands of end users.  With yesterday’s bounce, it still could have been the same.  Chinese markets were firmer overnight with beans up 1.25c, meal up $1.40, soy oil up 1c, corn up 5.75c and wheat up 4.25c.  Paris Milling Wheat is up 0.19%, Rapeseed down 0.44%, corn unchanged, UK feed wheat down 0.29% and Canola down 0.71%.  The Canola/Soybean spread (weight and currency adjusted) is back to $32/MT from even money in late August.

Call things a shade weaker to begin with, but don’t rule out two-sided trade once the pit gets open.  Short and intermediate term trends are still down, harvest pressure will be increasing the next two weeks, yield reports are still better than expected and the funds seem more apt to sell positions than add.  Longer-term, the bullish underlying principles still exist and will likely mean higher prices down the road.  Until then, however, prices should continue their sideways/lower trend, providing good call buying opportunities.

Trade as of 7:05

Corn down 2-3

Soy down 4-9

Wheat down 1-2

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