Afternoon Recap from Country Hedging's Tregg Cronin 11-26-12

Outside Markets as of 1:30: Dollar Index up 0.031 at 80.256; NYMEX-WTI down $0.45 at $87.85; Brent Crude down $0.35 at $111.03; Gold down $2.70 at $1748.70; Copper up $0.0050 at $3.5330; All major currencies are trading weaker; Livestock markets closed weaker.

Two pieces of economic data in the US today including the Chicago Fed National Activity Index which came in at -0.56 vs. a consensus of 0.18.  The Dallas Fed Manufacturing Survey was posted at -2.8 vs. a markets estimate of 4.7.  Equity markets were under moderate pressure as financial media dusted off fiscal cliff stories once the malaise of Black Friday wore off.  Nothing much to report in the financial markets, although the Dollar Index is throwing off some interesting chart patterns, as shown this morning.  Argentine Credit Default Swaps backed off from this morning’s highs, but remain at rather elevated levels.

Firmer for most of the night and all-day, but corn gave back much of its gains to close only 1-2 higher in most contracts.  The excitement from a big export sales report Friday seemed to wear off a bit, especially once the small shipments data arrived mid-morning.  Traders also made note of the fact Japan accounted for 57% of the 776,000MT sold last week, so other destinations remain somewhat absent.  One week of export sales doesn’t change the current situation if we follow it up with a paltry week this week which is possible considering last week was a holiday shortened one.  Export inspections were 15.9mbu vs. 14.4mbu last week and the 23.8mbu needed weekly.  Shipments are currently down 45.2% y/y, but soybeans are up 37.8% so there is definitely a pecking order with elevating capacity.  China did take 4.43mbu last week with one boat each of the Gulf and PNW.  Brazil’s corn lineup still shows 1.593MMT as of this morning vs. 1.366MMT last week.  Dr. Cordonnier was floating an article on his website talking about 3MMT of corn still in the Brazilian country side which needs to move to market before soybean harvest begins in mid-January.  I guess that’s near-term supportive but overall pressuring if they have that much corn left.  Charts certainly have a better feel to them now that December options are out of the way.  The next upside objective on corn is the $7.55 mark basis the December, then $7.76 from October 11^th.  We should run into some farmer selling between $7.50 & $7.75 now that the farmer has readjusted his marketing objectives with few thinking corn needs to make a run back at $8.50.  Ethanol margins are projected negative by $0.30/bu, and reports continue from the country about ethanol plant financial health.  Spreads were mixed/weaker with only the CZ/CH gaining 0.25c to -4.00c while the other calendar spreads weakened.  The Missouri River flows out of Gavin’s Point in Yankton are expected to be reduced this coming Friday, and the STL River Gauge read -1.5ft this morning.  At -5.00ft, navigation becomes impeded.  Rail freight hasn’t seen much excitement yet, but barge line operators are growing increasingly anxious with a closure all but assured without a massive rain system.  NOAA maps look dry the next 15-days.  Brazilian guru Michael Cordonnier cut his Brazilian corn production number 1.0MMT to 71.0MMT citing dryness.  CIF bids were indicated at +84Z through March while offers are around 4c above that.  This is putting IL river corn below delivery by 4.9-9.4c for Nov and FH-Dec, but 8c above for LH-Dec.

Wheat too benefited from a favorable export sales report Friday, but saw terrible shipment data today which helped temper things.  There was some decent inter-market spreading with buying KC wheat and selling Chicago/MPLS.  Renowned speaker and analyst Dennis Gartman issued a memo to clients saying he wanted to buy KC July ’13 wheat at a 50-52c premium over July Chicago with the expectation for it to go to $1.00.  This has already been a crowded trade, but apparently people wanted to own it today.  Wheat export inspections were 7.8mbu vs. 11.4mbu last week and the 23.3mbu needed weekly to hit the USDA’s mark.  Regular destinations took the wheat in this rather slow week.  Shipments for the year are down 14.0%.  Iraq issued another tender for a nominal 50,000MT with origins including Russia, Kazakhstan and Romania along with the US, Australia, Canada and France.  Unless something crazy happens and nobody offers any wheat, US wheat should be too expensive on this one again.  Dec 3 deadline.  Jordan issued a tender for 100,000MT.  India said it has shipped 800,000MT this year so far with another 1.3MMT worth of commitments to hit their 2.0MMT quota.  Odds are good another 1-3MMT will be sold from state reserves for export, and needs to be considered in the overall wheat export/import grid.  UK winter wheat planting was reported down 12% to 4.3 million acres due to wet weather preventing field work.  Spring barley will likely take up the slack.  The EU on the other hand, is generally in good condition including France.  There remain some risks to Russian wheat due to above normal temps which could lead to frost damage.  This all from a report by MARS (EU’s Monitoring Agriculture Resources).  Not much change to to-arrive bids with 14.0% exploders at +70/75Z while shuttles are seen at +55Z.  Call the PNW +85Z, but it would take +95Z to buy wheat from the country at any good west spreader.  The national winter wheat condition rating fell 1pt to 33% G/E.  Biggest declines were seen in MO (-6) IL (-3) OH (-3) NC (-6) TX (-9) AR (-11) SD(-2) NE(-3).  The PNW erased some its losses last week with a 22pt jump in OR and 10pts higher in WA.  Odd to see the huge swings.  Emergence is pegged at 88% vs. 90% average.  SD is still only 60% emerged, with MT at 68%.  This is the last crop condition rating of 2012.

Soybeans showed the most strength today, closing with 6-10c gains, although some late bearspreading hit spreads rather hard with the SF/SH closing down 3.75c to +12.00c.  A trade and close of +12.00c is the lowest print and close since March 30^th , 2012.  The weakness in both the bean and corn spreads seems to be tied to the panic on the river.  It looks rather likely the river will be restricted or altogether closed sometime in December, and if/when it does, it will render owning the spread to take delivery useless because one won’t be able to get the grain past St. Louis.  So despite the fact our basis is hot along the river, and the fact we are trading near or above delivery equivalence, we could continue to see the spread get pressured.  The USDA reported another 20,000MT of soybean oil sold to unknown destinations for the 12/13 marketing year.  The current soybean oil sales now exceed the annual USDA forecast for all of 12/13 by 60-80 million lbs, and we have 10-months of the marketing year left.  Soybean oil basis in IL is -300Z, while bean oil basis in Brazil is +100/150Z.  Soybean oil calendar spreads are still running 100-200% of full carry, signifying exporters are basically getting rid of it for free to make room for more oil as the guys crush beans to get the meal.  CIF bids were unchanged in the spot at +100F against no offers.  Dec is +95F.  This puts spot along the IL at 6.4c below delivery, but above delivery by 5-13c through February in Zone 3.  That’s supportive, and March is sitting around 19.5c above delivery, implying the SF/SH might be getting a little cheap.  Celeres reported soybean planting at 74% complete in Brazil vs. 81% a year ago.  The crop is thought to be 50% sold vs. 39% a year ago.  A big reason behind that has been the weakness in the Brazilian Real which has put more money in the farmers’ pocket per bushel, and has tempered the big correction we’ve seen in the CBOT prices.  Soybean inspections were 45.5mbu vs. 66.8mbu last week and the 19.9mbu needed weekly to hit the USDA’s mark.  Last week was shortened due to Thanksgiving which could account for some of the lighter totals.  Main concerns with South America right now are too wet areas in Argentina.  German milling wheat trading into Brazil should speak to the idea Argentina’s received too much rain.  This needs to be monitored, but it doesn’t seem to be setting off any alarm bells just yet.  No one is really axing production numbers anyway.  As big of a problem as the rain could be, if Argentina’s government defaults, it could be as big of a problem or worse.

Sláinte.

Tregg Cronin
Market Analyst
800-328-6530
651-355-6538
651-355-3723 fax

www.chshedging.com

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