US employment data took center stage this morning. Most in the trade were looking for the data to show an 150,000 private sector jobs added, instead the US data showed we added 257,000 private sector jobs! WOW! Once again better than expected US economic numbers trumping almost all expectations. In addition Hong Kong reported another round of good "Retail Sales" numbers overnight, while India's manufacturing data has surged higher for the second consecutive month... Net-net this disputes most worries and fears about a deepening global economic recession.
Interesting to note that the S&P 500 hasn't fallen more than 50bp since late December, as almost every break is looked upon as a new buying opportunity. Crazy to think about, but the spread between the NASDAQ and S&P at 1170.29 is the highest since February of 2001.
European headlines are limited this morning, but there are big meetings scheduled in Greece both today and Monday. We will also have the ECB, the Bank of England, and the European Banking Authorities all meeting next week as well. With very little EU news this morning and better than expected economic data here at home I would suspect strong "outside" market winds to push us higher. Next week, however, could be an entirely different story as European "headlines" will dominate the markets.
For the option traders in the house you have to believe the "volatility" is bottoming out, keep in mind we have the USDA report coming out next week (Feb 9th, next Thursday), followed by the highly anticipated March Acreage Report. If you are looking to be a buyer of "premium" (either a put or call) this might be the last big winter "sale" of the season.
Australia has seen massive rains the past couple of days, which are causing some serious concerns for their cotton, sugar cane and soybean producers. From what I am hearing New South Wales and Queensland have gotten two and a half feet of rain in two days. With the massive rains occurring "after" the grain harvest I doubt the trade will add much premium at this point, but we need to keep our eye on the situation. The floods have closed several coal mines, and I am thinking it could lead to some logistical issues and shipping problems for the grain industry. There are also some livestock problems starting to arise.
South American Weather has stabilized but there is still some concern about lack of rainfall in South Central Brazil and too MUCH rainfall in the northern areas. Point being Brazil is not out of the woods just yet!
Here at home the Western and Northern Corn Belt have been enjoying some abnormally warm winter weather (which is coming to a screeching halt). I have gotten several calls the past two days from wheat producers out in Kansas that are telling me the wheat is is starting to "green-up." This could become a concern in some areas as we move forward, as any type of late "cold snap" in these areas could cause "winter kill" type issues. Below are few winter weather statistic I found interesting:
- The average temps in Kansas for January have been almost 7 degrees warmer than the 1895-2011 average, making it officially the states twelfth warmest January since 1895.
- Canada has had the second lowest snowfall amount in 50 years up to this point.
- Throughout the continental U.S., last month was the third-least snowy January since comparable data were first collected in 1967.
- Austin, TX sets new record Feb, 1st temp at 83 degrees.
- Many record temperatures have been set across the central plains. Norfolk, NE warmed to 67 degrees, Lincoln, NE reached to 70 degrees, and Omaha, NE touched 69 degrees. Moline and Peoria both set records at 60 degrees. Peoria's previous record high was 56 degrees on this date back in 1988. St Louis, Mo tied its previous record high of 67 degrees.
- Des Moines, IA reached 67 degrees for a new record. It was the 2nd warmest day ever recorded in January for Des Moines.
- I believe it was the first time ever that the temperature reached 67 in Des Moines twice during the same January.
- North Dakota has seen temps soar to over 55 degrees, breaking a 1908 record for warmest January day in recorded history.
These record high temps and abnormally warm conditions are not just limited to those of us in the Midwest. Flowers are now sprouting in New Hampshire, the Sierra Mountains in California are nearly snow-free, and lakes in many parts of the Northern US have still have not frozen. Portions of northern New England, the Upper Midwest, and the mountains of the Western US that are normally under deep snow by now have just a dusting. I have heard the cause of this warm first half of winter is the most extreme configuration of the jet stream ever recorded. Supposedly the conditions have caused the Icelandic Low to draw a strong south-westerly flow of air over eastern North America, preventing Arctic air from plunging southward over the US. Now this morning we are hearing forecasters calling for up to 22 inches of snow from Denver to Eastern Kansas. My point is with a highly abnormal winter now moving from one extreme to the other, I doubt we will see anything but a highly abnormal summer!
US soybeans are starting to gain a little more attention as they had a nice rally today with March finishing up 15 and half cents higher. November beans ended the week up 13 and a half higher at $12.37 and a quarter. From what I have heard US soybeans and meal have recently grabbed a little interest from the EU as their crush have improved on stronger meal premiums. As you can imagine this rarely occurs during the South American harvest (US generally gets none of this business). The rumor is the "line-up" in Brazil is now approaching 3 million tons and several insiders are reporting the wait time is running between 2-3 weeks. There is now even talk that US soybeans to China for April deliveries are actually cheaper than those form Brazil. As you may know this is also very unusual. I had told you weeks ago once we got into March the US would have little if any chance of making US soybean sales to China, as Brazil would win all of the business...looks like I might be eating my words on that one. I am not saying we will ship any huge amounts, but I do find it interesting that we are in fact competitive and in the running.
With the soybean export basis firming and the supply pipeline remaining somewhat limited, you have to believe those short the export basis will soon be forced to buy the March soybean futures. This is one of the big reasons why I believe the March soybean futures has no more than $0.50 cents of downside during the next few weeks. As a spec I like being a buyer at the low end of this range ($11.70's), and as a producer I would continue to hold off on making any additional sales at this juncture.
Corn basis levels seem to also be firming a touch. Spread strength however has been hurt by the recent fund roll's. I have to imagine once the roll's are completed and assuming the basis stays strong the spreads will start to firm back up. Therefore is you have made some profits on the short side you need to be thinking about your exit strategy.
You should note that the US Ag Attaché in Argentina lowered their Argentine corn estimate from 26MMT down to 21.8MMT, many still believe this NOT low enough. They also lower their Argentine soybean estimate form 50.5MMT down to 46.5MMT. I have to believe the next round of USDA numbers will be extremely similar.
The Inform numbers were released this morning. Below are the highlights:
- Argentine corn 22.5 mmt down 1.5 mmt from last month
- Argentine soybeans 46.5 mmt, down 4.5 mmt from January.
- Brazilian soybean production 70.0 mmt, down 2 mmt from last month
- Brazilian corn crop estimate at 61.65 million tons
- Total South American production down 7.6 mmt from last month.
- South African corn 12.0 mmt down 0.6 mmt from last month.
- Ukraine corn increase to 22.5 mmt, up 3.5 mmt from last month (higher area).
- Ukraine wheat production 13 mmt down 4.5 mmt from last month.
- India wheat production 88.0 mmt up 2.5 mmt from last month.
Our friends over at Goldman Sachs seem to be on the same page we are in regards to US corn prices. They reported yesterday that they were bumping their short-term projected corn prices form $6.20 up to $6.90, wheat from $6.20 to $6.80 and soybeans from $12.15 to $12.90. JPMorgan followed similar suit by moving their Q2 projected corn prices to $7.00. Both however are looking for corn prices to fall back later in the year. Goldman in fact has their 12-month corn prices pegged at $5.25.
Many "sharp" producers are becoming more and more concerned about their 2013 crop and just how aggressive they should become in pricing production. Most are making the following assumptions:
Fertilizer will be flat to lower on prices. Retailers as of late allowing producers to book fertilizer for next fall at the same price they purchased it at this year. $700/ton ammonia, $540/ton Potash, and $600/ton Phosphates.
Most of the best producers have cash rents locked in through 2013.
Machinery costs seem to be stagnant to lower as most have already upgraded.
Diesel fuel is obviously an unknown with risk predominately to the upside.
With the above scenario and assuming a 180 bushel yield, several producers have indicated that by pricing just 25-30% of their crop in the $5.50 to $6 range in the Dec 13 contract it would allow them to sell the remaining 70% at $4.00 and still break-even. Certainly this is a "Defensive" type position, but for many this could prove to be a very smart move. As I have mentioned in days past US yields will ultimately dictate price direction. There is no doubt that any trend-line type yield could add serious pressure to prices. Getting that first 20-30% locked in at a good profit certainly makes marketing the remainder much easier, just don't get carried away with getting too much on too early.
We all know what happened a couple of years back when advisors where having producers lock in profits two and three years out at $4.50. You have to avoid a similar type mistake...