Overnight Highlights from CHS Hedging's Tregg Cronin

Outside Markets: Dollar Index up 0.305 at 80.155; NYMEX-WTI down $0.36 at $92.76; Brent Crude down $0.28 at $112.19; Heating Oil down $0.0208 at $3.0255; Livestock markets are steady/better; Gold down $10.10 at $1678.70; Copper is down $0.0180 at $3.7180; Silver down $0.157 at $30.840; S&P’s are down 4.25 at 1452.75, Dow futures are down 29.00 at 13,302.00 and Treasuries are slightly better.

A little bit of profit taking evident in the overnight trade with Asian equities closing firmer, but European equities under pressure as the IBEX-35 drops 1.10%.  The Shanghai Composite (China) rose to its highest level last night since June 20^th.  Also worth noting, The Bloomberg Financial Condition Index, which ranks things like equity levels, bond yields, volatility and corporate spreads, rose to its highest level since April of 2007.  Their proprietary Economic Surprise Index is at its highest level since April of 2012.  In other news, it looks increasingly likely Speaker Boehner will retain his position in the House.  China’s service industries expanded at their fastest level in four months, while manufacturing expanded at its fastest level in 19-months.  Mortgage Applications fell 10.4% in the latest week.  Later this morning we will get the ADP Private Payroll data for December which is seen +140,000.  Initial jobless claims are seen at 360,000, up 10,000, and the New York ISM is up at 9:45 (52.5 prev).

No precip in the last 24 hours pretty much anywhere in the continental US.  Virtually nothing seen for the Midwest the next 5-days, although by the middle of next week a better system is seen impacting the southern plains.  Total guesses at this point are seen around 0.7-1.4” for the vast majority of TX, a good chunk of OK/AR/LA and scattered areas in MO/KS.  Things dry up a bit more in the 8-14, and temperatures are seen above normal for the central/east belt throughout.  Late in the period, temps moderate to normal/below in the west.  The forecast sees things to be fairly quiet in most of the Argentine growing regions for the 5-7 days. Some rains will fall in the far northeast (far northern BA, most of Entre Rios and Corrientes) for Friday and the weekend, with totals of .25- .75”, isolated to 1”+. By the middle of next week, a front looks to bring rains of .40-1” to all of the Argentine growing regions. Things will be fairly quiet in the S. Brazil growing regions for the rest of this week and by the weekend rains look to start up and bring totals of .40-1”, isolated to 1”+. More rains are seen for next week in the S. Brazil growing regions as well, early estimates running in the .50-1”+ range. The tropical rainfall in the northern Brazil growing regions looks to run close to average for the next week to 10-days.” –John Dee

Follow through selling in the grains overnight with soybeans down the worst.  The exception is of course wheat, but it shouldn’t come as that much of a surprise. What was probably more surprising was the sharp sell off yesterday.  Wheat was competitive before the selloff, and is even more so this morning.  FOB offers out of the Gulf on US-SRW are seen at $306.90/MT vs. French dlvd Rouen offers at $325.46/MT FOB.  What’s not supportive to wheat is the lack of tender business showing up.  Syria is in for 100,000MT, Iraq is in for 50,000MT, but that’s about it.  In fact, Egypt once again took to the wires last night proclaiming they have enough wheat for domestic use until June 17^th, with their harvest beginning in May.  Soybeans seem to be about SAM weather and index rebalancing.

Pretty thin newswires overnight, which should further highlight the selling pressure is coming from managed money players.  Scattered headlines included Credit Suisse saying corn prices have peaked for the marketing year and wheat has the most upside of any farm commodities.  “High corn prices have rationed demand.”  The USDA’s Foreign Ag Service raised Brazil’s soybean output to 83MMT vs. USDA’s last official guess at 81MMT.  They see exports climbing to 39MMT from 32.1MMT a year ago.  Farmers in Argentina have sown 80% of the soybean area and 75% of the corn area.  Concerns exist about the delayed planting and eventual yield potential.  Deutsche Bank AG said the US hog supply is signaling the USDA may have to raise its domestic use assumptions for corn and meal use as animal feed.  One other story said Australia is facing its most wide-ranging heat wave in more than a decade as 80% of the continent is hit by temps above 104 degrees.  Harvest is obviously complete down there, but noteworthy nonetheless.

Open interest changes yesterday included wheat up 6,220 contracts, corn up 16,400, beans up 2,860, meal down 80 and soy oil down 3.  Not delicious to see wheat, corn and soybean open interest pop that much with futures down as hard as they were.  Likely we saw fresh shorts enter the market.  The lack of open interest changes yesterday in meal and oil show unwinding of spreads, and a fair amount putting oil/meal spreads on instead of meal/oil.  Deliveries overnight included 9 meal and 2,754 soy oil.  Chinese markets were once again closed, but will re-open tomorrow.  Malaysian Palm Oil was down 27 ringgit to 2,474.  Paris Milling Wheat is down 0.10%, Rapeseed down 0.11%, Corn down 0.52%, UK feed wheat down 0.48% and Canola down 1.12%.

Lower to start, but wouldn’t be surprised to see some intra-day pop.  Ethanol and exports will be delayed until tomorrow morning, and will be released concurrently with the monthly employment report.  The Dollar Index strength is a pressure point as is the ongoing index fund rebalance (including front-running and tail-running).  Demand has become stale, and weather in South America looks about as good as one can ask for with early beans already being harvested in northern Brazil.  The Bulls’ next hope has to be the Jan 11 reports, and those feel like they’re a month away.

Trade as of 7:05

Corn down 4-7

Beans down 12-15

Wheat mixed: SRW -1/HRS +4

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

www.chshedging.com

CHS Hedging, Inc.
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