Afternoon Recap from CHS Hedging's Tregg Cronin 12-3-12

Outside Markets as of 1:15 CDT: Dollar Index down 0.350 at 79.857; NYMEX-WTI up $0.16 at $89.06; Brent Crude down $0.37 at $110.86; Heating Oil down $0.0042 at $3.0565; Cattle firmer and hogs weaker; Gold up $6.40 at $1719.10; Copper up $0.0075 at $3.6560; S&P’s are down 3.25 at 1411.50, Dow futures are down 34.00 at 12,974.00 and Treasuries are softer.

Financial markets gave back most of the morning gains after weaker than expected readings off the ISM-Manufacturing survey which shoved us back below the boom/bust level of 50.0 for the first time since July.  Many were quick to cite Hurricane Sandy for the disruptions, but details seemed to suggest it had more to do with uncertainty generated by the fiscal cliff than the super-storm.  The new orders component and the employment index did drop, but the production index actually rose.  If Sandy had forced widespread closures, the production index also would have dropped.  There was little for comments from Washington DC which might have been a good thing.  The dollar index remains under pressure, trading at the lowest levels since October 31^st.  The continuous commodity index was up 0.50% today to 574.28.

A rather uninspiring close today with corn giving up 8c gains to see the front-end of the curve close down 1-2c.  The deferred contracts did manage to close in positive territory, pushing a bearspread bias on the day.  Slower than expected export shipments, weakness in wheat, softening cash markets after last week’s movement and still no strong stopper on the 246 December deliveries all seemed to be factors.  Export inspections were just 9.6mbu, the second-lowest shipment total of the marketing year and well short of the 24.1mbu we need to ship each week to hit the USDA forecast.  Total shipments to date are 208.3mbu, down 48% from a year ago.  Worth noting, China took 2.01mbu off the PNW, an encouraging sign to see them keep taking our corn.  Farmer hedging today slowed quite dramatically considering these prices were available last week after some better movement early.  Despite the lack of movement, cash corn basis seemed to back off today.  CIF bids were indicated at +78H, off a few cents from Friday as the push seems to be about getting soybeans south of Cairo before corn.  Once the river closes in mid-December, corn will have to move to the Gulf by rail, or go to Hereford, the PNW or possibly the Atlantic.  An article from Bloomberg said farmers could see freight costs double as things need to move by rail instead of barge, or because the barges have to be loaded so light in order to avoid grounding in the low areas.  Other newswires said the US Army Corp of Engineers intends to speed rock blasting between Thebes, IL and Grand Tower, IL on 13% of the river rocks will begin January 3^rd.  This could allow light loaded barges to make it through the affected area.  Parties are still petitioning the President to release more water out of the MO-River, but no word on that yet.  Midday bids off the PNW looked a bit weaker as well with +100/108H bid for Dec/Jan.  +110/113H is available for Feb/Mar, but the majority of corn isn’t actually working to the PNW, but instead being spread to another domestic destination.  Most ethanol production margin calculations remain rather negative.  In export news, an Israeli firm is tendering for 115,000MT of corn for Jan 20 shipment.  COFCO (China’s state reserve buyer) and Ukraine have continued their talks about Ukrainian corn working into the country.  Most still seem to think Ukraine could ship their first cargo in December.  Supportive to corn is the ongoing rains in Argentina which are prompting acreage shift ideas from corn to beans.  Heavy rains will continue this week, but most see a drier pattern in the 6-10.  Brazil’s vessel lineup to load corn was seen at 1.942MMT vs. 1.593MMT a week ago.  Brazil’s corn planting progress is seen at 86.3% vs. 94.3% a year ago according to Celeres.  The summer crop is forecast at 37.1MMT and the winter crop at 38.5MMT.  One note of the COT report, commercial gross longs (end users) saw their position drop 67,286 contracts, or 16.1%, to 364,511 contracts in the latest week.  The specs have continued their buying, but that’s a big drop by the guys who actually use the corn.  March corn looks as though the $7.15-7.75 range will continue for the foreseeable future.  Farmers sell at the top and end users buy at the bottom.  Looks like selling straddles and strangles could be a safe bet, kind of like ADM has been doing as of late.

Wheat had a very similar session to corn, rallying overnight and early, only to give up gains and close lower despite some weekend tender business, dry HRW-wheat areas and more rain in Argentina.  Wheat bulls finally saw the export business they’d been waiting for when Egypt decided to buy 165,000MT of US-SWW at $337/MT FOB, and 115,000MT of US-SRW at $348-351/MT.  As supportive as Egypt taking US wheat was the fact the offerings from France and the Black Sea were somewhat limited.  Egypt did buy one cargo each from France and Romania.  While this is certainly supportive, it’s the higher pro wheats such as US-HRW which is so badly behind the pace needed to hit the USDA’s export forecast.  It would be very encouraging to see Iraq move on some US-HRW in its current tender, but based on the last trades, that might be a tall order.  Bottom line is it looks like importers are coming for US wheat now, but will need to continue to do so in order to keep prices elevated.  Australia’s harvest is moving past the halfway mark, especially in W-Australia where it is 61% complete.  Export inspections totaled 14.2mbu today, above last week’s 8.1mbu but below the 23.8mbu needed weekly to hit the USDA’s mark.  While not a new feature, interesting to note the cash spread on the spot floor in Minneapolis and KC.  12.0% HRW was quoted at +85/100H today, so using the offer side would put it at $10.06.  14.0% HRW was quoted at +82H which would put it at $10.13.  If these two classes of wheat are nearly the same price, but one offers you 2.0% more protein content, which would you rather own?  Would imagine mills will try working in more HRS were applicable.  COT data out Friday offered a couple interesting observations.  First, the net long position held by the funds in Kansas City wheat dropped to 26,735 contracts, the smallest since the week of June 26^th.  This despite commercial gross longs having been buyers for the past 5-weeks.  On the other side of the coin, Chicago wheat saw a big drop by the commercial gross longs (end users) last week.  That group shed 69,647 contracts (36% of their position) in the latest week.  This while specs bought roughly 10,000 contracts.  In Minneapolis wheat, funds pushed their net long position to 8,433 contracts, the largest since April 24^th.  Some very different actions across the three wheat exchanges.  Dry forecasts remain for the southern plains the next 10-15 days.  This should be a back burner issue for the near-term, but will be a talking point nonetheless.  A little discouraging to see us get the business we wanted and sell off, whereas all fall we rallied every time Egypt or a big importer bought wheat from a competing nation because they were that much closer to running out…

Soybeans managed a good close, finished up 12-17c, although they were off their highs by around 8c.  Without regurgitating most of the news outlined above, supportive influences continue to be the wet forecasts in Argentina, solid demand on both soybeans and products, and firm basis levels in both the US and SA.  Export inspections in the latest week were 51.1mbu vs. 46.6mbu the week before and the 19.1mbu needed weekly to hit the USDA’s mark.  Interesting to see 2.0mbu destined for China inspected off the Atlantic.  Consolidated Grain & Barge (CGB) sent out an email to customers today saying they will essentially stop taking barges north bound up the river by December 9^th.  Celeres released data today on farm marketings and planting progress with 50% of next year’s crop thought to be sold vs. 40% a year ago.  Plantings were seen at 83% vs. 88% a year ago.  They kept their soybean production outlook unchanged at 79.1MMT, but this is lower than the USDA’s 81MMT.  It was interesting to see the % of average precip totals for South America this morning.  One can definitely see the trouble areas and the really good areas.  Buenos Aires in Argentina is definitely a trouble area with their reporting stations showing 308% of normal precip during the month.  Other regions were anywhere from 158% (La Pampa), 796% (San Luis) down to 15% (Correnties).  Brazil wasn’t as saturated but did have some areas in the south which would have liked to have received more rain.  Most areas there were between 57-88% of normal.  Largest amount of open interest in January soybeans is at the $15.00 strike.  Option expiration is around 20 days away, so keep it on the radar.  One last note on the COT data, funds continued to liquidate their position last week, dropping their net long down to 73,150 contracts, the smallest since February 14^th.  Their positions are following the exact same trajectory as last year before the weather problems started.

6-10 South American weather forecast.  Drying up in the south where drier weather is needed.

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

www.chshedging.com

CHS Hedging, Inc.
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