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IKAR in Mass Media

Weekly Market Review - Alpine Trading LLC

22 декабря 2014 года

WHEAT

We finally reached a point in the wheat market of capitulation, in my opinion. As I had been calling for several weeks now, I was expecting WH15 to reach $ 6.80 as a final target and just yesterday, the market topped out at $ 6.77 per bushel with a weak close on futures and spreads. At this point, I believe we are seeing better movement from farmer side and cash markets weaken, with all U.S. HRW, HRS and SRW cash markets in the last few days very much on the defensive. The deliverable stock situation continues to show some quality concerns in the SRW markets so we might still see these cash markets not drop as much as HRW and HRS

We saw that the major buyers like the Egyptians were absent in the market this week. The big news really came from Russia potentially halting or slowing down exports and some weather forecasters raising the alert about US winter kill issues (it looks like a really remote chance) caused more fund buying. From my perspective, I remember when the Russians threaten to ban exports a few years and the Egyptians told them, “No, You don’t.” Whatever Russia can’t export, I think we will see the rest of exporters pick up the slack like the Ukrainians.

Russian Deputy PM saying they met with grain exporters and said the government will use all informal instruments to restrict grain exports and that the Deputy PM did not clarify if Egypt and Turkey are exempt. It would be political & commercial suicide for Russia NOT to ship to Egypt. The Russian Veterinary and Phytosanitary Service (VPSS) had restricted grain export certs for some countries, Egypt,Turkey and Armenia are still allowed to receive Russian grain. Turkey and Egypt are the two largest buyers of Russian grain. Russian wheat prices remain ill-defined.

Russian rail loadings were cut overnight this week. IKAR saying that this is NOT a formal ban, that there are some approvals from time to time. Vessels in Russia that have been loaded are now being told they cannot sail by the phytosanitary authorities and buyers such as Yemen, Georgia and Saudi Arabia are in the lurch. EU buyers saying that they’re trying to figure out the consequences since they won’t be able to apply force majeure. Ukraine expects to pick up some business as they have no intentions of limiting grain exports.

Strategie Grains forecasted EU soft wheat production at 140.2 mmt with total wheat production (including durum) at 148.1 mmt, down 0.6 mmt from their prior estimate in Geneva last month, which would be down 5% Y/Y. Lower acreage in Germany and Britain resulted in a 2 mmt Y/Y cut there; a 5 mmt cut between Hungary, Poland, the Czech Republic, Bulgaria and Romania. Rightly so, Strategie Grains was bullish at least since Geneva in November when I spoke with them personally.

Bangladesh tendered for 50,000 MT of opt origin wheat for Feb/March delivery. There is also talk that Algeria bought 100,000 mt of durum at $ 530 pmt CNFFO basis, possibly Canadian but not confirmed sale. Tunisia bought 42,000 MT of milling wheat at $ 279-280 CNF pmt and 25,000 MT of opt origin barley at $ 242.25 pmt CNF. Algeria tendered for 50,000 MT of opt origin milling wheat for March/April. Taiwan tendered for 78,320 MT of US wheat. Japan received no offers in their regular feed wheat, barley tender. Japan tendered for 130,359 MT of food grade wheat.

Export sales this week were at 476,300 mt vs. 250-450kmt range expectations. While not very large, it was the largest weekly wheat sale since 741,038 on 9/25/14 and business looks routine destinations. Major destinations to Japan (112,300), Mexico (84,500), Nigeria (62,000). MYTD exports now 17.851 mmt, -24% Y/Y.

Flash sales 89,264 MT of HRS to Mexico for 2014/15 and 22,316 mmt of HRS to Mexico for 2015/16. Interesting the HRS sale, the rally has caused basis to collapse in that segment, to the point where cash sources were pointing out that HRS off the PNW was cheaper into Egypt than SRW out of the Gulf.

From trading perspective, we exited all the bullspreads, being long the KC July / Dec spreads going into the rally and liquidated the positions yesterday. We are not currently in any positions in wheat but are looking for buying on breaks (perhaps below $ 6.00 on wh) or selling calls on rallies (675-685).

BOTTOM LINE: As I have been mentioning on other outlets this week, I think that we have topped the wheat futures markets yesterday and hopefully most of you have following my advice and have been covering their cash needs through April/ May 2015.

CORN

The corn market was least exciting of the bunch this week, but still some interesting news appeared with Chinese in the headlines now allowing certain GMO corn imports but also making big purchases (bulk cargoes) of DDG’s which definitely stirred the market to climb higher. Nonetheless, my hopes for an extended rally too much higher are NOT very big and would believe that we will trend towards $ 3.80 to test key support levels. We are buying corn from the farmer at these levels and I believe that the wheat rally will dissipate so probably will cause pressure on these grains back to more reasonable levels.

There were big corn deliveries vs. the Dec, total of 1,267 delivered vs the contract, which is the largest in some time, there were 1,122 delivered against the March 2014 contract while only 33 contracts were delivered against the Dec 2013 contract. Relatively decent volume in CHCK with most corn spreads flat overnight, 9,435 contracts trading on the screen overnight vs 21,496 on Friday. New crop corn spreads though continue to show signs of strength. Chatter that 2/3rds of the corn delivered were #3 quality.

USDA’s Vilsack officially said that MIR 162 has been approved along with two soybean varieties from Pioneer and Bayer Crop Science. Chinese government said that if you’re a non-state owned company and want to import corn, you need to buy from state reserves first. I still believe that the chances for Chinese to be actively importing corn are very small even though they do currently have sorghum and DDG’s on the books.

CNGOIC saying that Chinese buyers have bought as much as 900,000 MT of DDGs (15 cargos for Dec-March shipment which would be 225,000 MT/month). In October, China imported only 117.8 TMT of US DDGs. Prior to the slow down, from Aug 2013-Aug 2014, they were imported around 524,125 MT/month on average.

South Korea buying 126,000 MT of corn $216.85/ton C&F and $216.88/ton C&F respectively for April shipment. South Korea’s NOFI bought 69,000 MT of opt origin corn at $214.46/ton C&F plus $1.25 ton surcharge for additional port unloading for April 2015 shipment. South Korea’s MFG tendered for 280,000 MT of corn for April. S Korea’s KOCOPIA bought 60,000 MT of US corn at $223.79/ton for Feb/March shipment.

Export sales for corn were 693,500 mt this week vs. 650-850,000 mt expectation range vs. 962,800 mt last week.

USDA baseline projections released, they forecasted US 2015/16 corn acres at 88 mil with production at 13.445 bbu. Carryout estimates based off the November estimates on carry in. New crop corn carryout seen at 1.733 bil bushel. This is obviously a smaller carryout than 2 billion for 14/15, but nonetheless, still a lot of corn that would put burden on the market eventually if the crop is realized.

US Grains Council said the quality of the record large US corn harvest was “good” with high average test weights beneficial for export prospects. Average test weight was 57.6 lbs, l below the 3 year average of 58.8 lbs but high enough to average as #1 quality. This year’s crop had slightly lower moisture and protein content and comparable starch concentration than the 2013 crop. Overall higher yields reduced protein while good kernel fill resulted in comparable starch content.

From a trading perspective, we are still long the H/N in the spreads but really this is not going anywhere for now. This could be more of a play given the potential issues in Argentina and the fact that Brazil corn and Ukrainian corn have become premium to U.S. recently. This is one of the reasons that I would recommend to put on coverage through April/ May in cash.

BOTTOM LINE: I believe we are headed towards $ 3.80 on the March so not in any hurry to buy into this rally but would recommend to have cash coverage through JFM and A/M as see difficult situation in Argentina during harvest because of economy and politics.

OILSEEDS:

Soybean market is still stuck in a range and recently showed some signs of life, but seems to be having a difficult time so far with fairly cooperative planting pace in South America and good weather in major growing regions. There is current talk of some dryness in southern Brazil that could impact the soybean crop right now but too early to tell.

Argentine farmer selling in beans estimated at 72.9% vs 81.1% this time last year, corn sales are seen at 91.6% vs 84.3% this week last year. AgRural reporting Brazil soybean planting at 96% complete, up 4% from last week and vs 98% avg. They forecast a 94.9 mmt crop, similar to CONAB’s 95.8 mmt estimate last week.

Beans holding the 20 DMA again. A surprising rally occurred yesterday but this is probably led be meal and talk of the Argentine port workers strike (Rosario, starting Thursday, asking for a year end bonus) lasting indefinitely. However, I think that the market has known that Argentina is on extended leave and is NOT loading any vessels after the New Year’s. Despite the flat price rally, bean spreads remain on the defensive. SFSH traded out to -9.

The Argentine government continues to threaten their farmers. They’ve told the Central Bank to not extend credit to producers who are holding beans and said that if they (producers) can’t prove that they’ve sold all of last year’s bean production, that they’ll close their accounts with these restrictions expected to go into effect in early January.

Brazilian Real traded to new highs to 2.75 today, better SA movement and their basis has been reflecting that. Also we are seeing the weakness in CIF beans for April and beyond but this might have more to do with barge freight weakness.

Further cancellation of meal registrations with meal values stabilizing in the domestic markets. For the most part, cash contacts suggest coverage is made through year end and also seeing some last few lots being covered. After breaking down Tuesday below the $10 support level, SMFSMH has rebounded and retraced the entire move. Tech resistance to $14 with 50 DMA at 12.7. I am personally looking to buy the SMH/ SMN on breaks, so will keep a close eye on the meal market as more bullish this product vs. the beans out right.

Brazil’s version of NOPA, ABIOVE, maintained their 91 mmt bean crop estimate despite CONAB’s 95.8 mmt estimate last week. Interesting that they’re citing lower productivity in Mato Grosso, which to this point, the main issue has been in southern areas.

Bean sales also within expectations at 696,000 with major destinations to China (402,400 including 299,500 switched from unknown and cancellations of 75,800), the Netherlands (130,000 including 140,000 switched from unknown and cancellations of 10,000), Mexico (117,300) and Indonesia (93,400). Shipments were 1.890 mmt, the smallest since 1.780 mmt on 10/23/14. MYTD commitments now 41.157 mmt (+5.6% Y/Y) vs the USDA’s +6.9% Y/Y est. There’s still 4.075 mmt outstanding to unknown. Meal sales better than expected with Italy (77,100 including 76,200 switched from unknown), Mexico (71,000) and Thailand (45,000) the major destinations. MYTD meal commitments 6.997 mmt, +18% Y/Y.

The USDA reporting the confirmation of the frame contracts signed earlier this week in Chicago, 1.5 mmt of beans to China for 2015/16 this morning.

NOPA crush for Nov came out at 161.2 mbu (165.4 exp), which still ranks as the 4th largest crush on record but puts Sept/Oct/Nov crush at 419.1 mbu (-2.6% Y/Y). USDA is forecasting a 2.7% Y/Y increase for crush this year, so that means that Dec-August crush needs to run 1.279 bbu (+4.2 Y/Y) in order to meet that target. A record 5.4 mbu/day crush if repeated in January would suggest a 167 mbu crush. Meal yield increased slightly to 47.10 and oil yield dropped to 11.1 which was down 0.32 from Oct and -2.6% of the 5 year average. Lowest Nov oil yield sine 11.04 in the 2009/10 MY.

Pakistani buyers bought 40-45,000 MT of Argentine meal at $465/ton C&F for April.

Bean acres were 84.0 mil with production at 3.820 bbu. Acres probably lower than expected but production was in line with trade ideas. Soybean carryouts were forecasted at 519 mbu. Bean yield was forecasted at 46.0 bpa, slightly better than expected. One interesting thing is that meal exports were forecasted at 12,900 TST, which would be up 0.8% Y/Y despite the large world soybean carryouts and SA production.

From trading perspective, we covered our short F/K meal bearspreads for profit this week and looking to buy H/N on breaks. We are still short calls in Feb beans and like this position as March beans filled to close above $ 10.50. We are long H/N in the bean spreads and losing right now but willing to be patient so close to full carry.

BOTTOM LINE: I think that we are going lower to $ 10 bucks again in the beans, but see definite good demand develop into April/ May for meal, so I would put on cash coverage as Argentina again I think will have serious issues going into harvest for executing their export program.

LIVESTOCK

There is not much to say about the fats and feeders that has not been said already. I completely missed any of the move because I didn’t have a strong opinion on how this would develop. It is very difficult to predict when a market will go limit down for several days straight. It ALMOST NEVER happens.

With that in mind, I will make a bold prediction and say that Live Cattle market has found a bottom, but I am willing to take a chance and buy Feb/ April spreads in the market instead of outrights. I would rather do this as even through the major “flushing of the toilet” that happened in this market, the Feb/ April spread held very very well. That’s what makes a bull market eventually.

CME increased the daily price limits in feeder cattle to $4.50 overnight, leaving fat cattle at $3 while raising feeder margins effective tonight from $1,650/1,500 to $2,475/2,250.

Cattle on Feed report is out today after the market close. US November Cattle placements are seen down 3.8% Y/Y at 96.2% (93.5-101.1% range) while Dec 1 on feed is seen at 101.1% (100.0-101.7%).

Japan’s AgMin confirmed a case of H5 avian flu on a poultry farm in Miyzaki prefecture in southwest Japan and culled roughly 4,000 chickens. There is believed to be no risk of the virus spreading.

BOTTOM LINE: I think that Live Cattle market has bottomed and willing to bullspread Feb/ April for now. No strong opinion on lean hogs right now.

COFFEE

Market earlier this week took it on the chin as the Brazilian coffee forecasts came out again rather bearish from private forecasts. Another important report this week comes on Friday after the market close for the semi-annual USDA Coffee Outlook. This will reveal important Supply & Demand forecasts and will give guidance for the next 4-6 months of what we can expect.

BOTTOM LINE: I personally believe that we have bottomed in the coffee market in the last few days in the low 170’s and will be heading towards $ 200.00 over the course of the next several weeks. We are bullspreading the market with this bias in mind.

SUGAR

As Agrimoney.com was reporting earlier this week, we saw the sugar market also bottom out in my opinion. They said that a further nine mills in Brazil's Centre South key will close for next season's harvest, taking the total mothballed capacity to 20%, amid mixed expectations for the region's cane production potential.

Both sugar merchant Czarnikow and Unica, the Brazilian cane industry group, forecast nine mills closing in the Centre South during the off-season - which lasts from around now to March-April, when the cane harvest begins ramping up again amid what is typically drier weather.

BOTTOM LINE: With energy markets stabilizing and Ethanol market appreciably gaining on RBOB markets, I think that the bullishness in Sugar is a function of the energy markets going higher. I believe that we are headed toward 17 cents so we are taking appropriate actions in the spreads to take advantage of this potential move.

CRUDE OIL

I won’t go into the statistical analysis of the Energies markets, because of the information that is released in this market is 1 week old and basically useless. However, we can make a judgement on the CL and RBOB spreads lately which have been stabilizing quite a bit after getting hammered in the last few weeks.

As I had been mentioning over the last few weeks when the markets decided to break critical levels in the low 70’s, we were headed towards $ 60.00. Now that we have stabilized the spreads and held support near $ 54.00, I think we are going higher.

BOTTOM LINE: I think that the CL market has bottomed and is headed back to 70.00 and RBOB will make a similar move higher.

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Source: InsideFutures.com  |   |  Comments: 0   Views: 135

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