The Grains Complex: brutum fulmen

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+ Honey Origins

Dr. Schilling of A. Gary Schilling and Co., writes about the fact that the US has banned honey exports from China. So, honey is shipped from China into Vietnam…as well as other Southeast Asian countries… is “stripped of pollen grains and other tell-tale indicators of origin and then shipped on to America.” As Dr. Shilling then notes, “Imports of honey from Vietnam have surged in recent years.”

+ Garbage In Garbage Out

By “garbage” we mean the massive shipments of used paper that the Chinese have been only too happy to take from our recycling operations all around the country, which they take, reconstitute and return to us as “new” newsprint or high-quality stationary, or as carboard boxes, milk cartons et al.

That has stopped… wholesale… and not because of US/China trade policies but because the quality of the “garbage” we’ve been sending to China has gotten worse and worse and worse. Chinese recyclers used to take waste paper shipments that had 5% contamination… unwanted plastic bottles; food stuffs; paper soaked in water and other liquids et al… but recently the “garbage” has gotten to the point were often 15-20% of it was “contaminated.”

Chinese workers who hand-cleaned the contaminants from the stuff that was wanted have rebelled and the Chinese government has responded… as we reported a month or so ago… by mandating that the contaminants be only 0.5% of the total. This is a level of “quality control”… if one can use that term when it comes to “garbage”… that is impossible to meet. Hence exports of recyclable paper have fallen off the proverbial export cliff, falling by nearly half of what they were only five or six years ago.

It has come to the point where cities across the US, instead of being paid for their recyclable paper, are now paying to have it removed instead! As The Wall Street Journal reported yesterday, Lancaster County, Pennsylvania was used to being paid $40/ton for its recyclable paper; now it must pay $4/ton to have that same paper removed. This will only become worse.

As we said, “Garbage in; no garbage out.”

Weather:

Goodbye to La Nina. The CPC says we are officially back to neutral or La Nada climate conditions, even if the ONI is still – 0.6 degrees. The neutral conditions are expected to persist through fall, with rising odds of an El Nino to follow. As you can see below, the models are in pretty good agreement for warmer than normal SST’s by the July-September quarter and some are hitting full El Nino territory by Sep-Nov.

Outside Markets:

Global markets were able to shake off early pressure and continued to gain ground during Wednesday’s trading session. There was a flare-up of Italian political tensions as one party in a potential ruling coalition proposed 250 billion Euros worth of debt forgiveness from the ECB, which rattled risk sentiment both in Europe and in North America. While European inflation readings were in-line with forecasts, they followed a negative quarterly reading for Japanese GDP that dampened risk appetites.

US economic numbers had mixed results as better than expected industrial production and building permits readings were balanced against weaker than forecast housing starts and capacity utilization readings.

While US equity markets stayed within inside-day ranges, all 3 major indices went on to post moderate gains. Treasuries gave back early gains and traded back to unchanged levels and remain close to Tuesday’s lows for the move.

The Dollar sold off after posting a new high for the move, but found its footing and went on to post a moderate gain while the Euro was driven down to a new low for the move due to Italian political turbulence.

The Asian session will feature March Japanese machinery orders and April Australian unemployment.

The European session will include March reading for the Italian trade balance and Euro zone construction orders.

The North American session will start out with a weekly reading on initial jobless claims that is expected to see a modest uptick from the previous 211,000 reading. Ongoing jobless claims are forecast to see a modest downtick from the previous 1.790 million reading.

The May Philly Fed survey is expected to have a moderate decline from April’s 23.2 reading. The Conference Board’s April leading indicators is forecast to see a minimal uptick from March’s 0.3% reading. Minneapolis Fed President Kashkari will speak during morning US trading hours while Dallas Fed President Kaplan will speak during the afternoon. Earnings announcements will include Walmart before the Wall Street opening while Applied Materials reports after the close.

Corn

Corn futures closed the day with most contracts 1 to 3 cents in the red, pressured by soybeans. This week’s EIA report indicated that 1.058 million barrels per day of ethanol was produced in the week that ended 5/11. That was 18,000 bpd more than the previous week and the largest weekly production (and implied corn consumption) total since mid-February.

Ethanol stocks were 21.505 million barrels, down 459,000 barrels from the previous week with both Coasts shrinking stocks. The news channels show little apparent progress on the NAFTA negotiations. The USDA Weekly Export Sales report on Thursday is expected to show 0.7-1 MMT in old crop corn sales, with 50,000-200,000 MT for new crop in the week of May 10.

Jul 18 Corn closed at $3.99 1/4, down 3 cents,

Sep 18 Corn closed at $4.07 1/2, down 3 cents,

Dec 18 Corn closed at $4.17, down 2 1/4 cents

Mar 19 Corn closed at $4.25 1/2, down 1 3/4 cents

Today’s Market Idea:

July corn saw some back and fill action yesterday with trade tensions with China and NAFTA delays continuing to cause headwinds. The weather up north is not ideal for finishing off planting, although areas in the Midwest that have seeds in the ground are looking very good with warm and wet conditions. A close above 407 could excite the bull camp and spark a run to the swing high objective at 417. Close-in support is seen at 396 followed by 393 3/4.


Soybeans

Soybean futures posted sharp 15 to 19 cent losses in the front months on Wednesday. The rest of the soy complex also saw weakness. Soy meal was down $5.70/ton, with front month soy oil 53 points lower. The 5 day QPF shows precipitation chances for rains this week with a majority of it in NE and IA and lighter totals in the ECB.

Recent weakness in the Real vs. a stronger US dollar has cheapened Brazilian soybeans on the world market. China is in the US this week to try and come up with a solution on the recent trade issues. USDA Soybean export sales of old crop are expected to be shown at 300,000-600,000 MT on Thursday, with new crop at  100,000-400,000 MT. Soy meal sales are seen at 100,000-300,000 MT, as 10,000-40,000 MT is estimated for soy oil.

Jul 18 Soybeans closed at $9.99 3/4, down 19 cents,

Aug 18 Soybeans closed at $10.03 1/4, down 18 3/4 cents,

Sep 18 Soybeans closed at $10.05 3/4, down 17 cents,

Jan 19 Soybeans closed at $10.13, down 15 1/2 cents,

Jul 18 Soybean Meal closed at $376.60, down $5.70,

Jul 18 Soybean Oil closed at $30.59, down $0.53

Today’s Market Ideas

July soybean have settled at the lowest level since February 5th close at 991 1/4. The low tick from the original US/China tariff announcement was 994 1/2, but the market settled at 1026 1/2 on that day. A close below 994 1/2 should open the floodgates with more liquidation type selling. Both soybeans and soybean meal remain oversold and will be sensitive to headlines if positive develops from the trade talks. Close-in resistance in July soybeans is at 1009 1/2 with November soybean resistance at 1019.


Wheat

Wheat futures settled with 4 to 5 cent gains in the HRW and HRS contracts on Wednesday, with SRW fractionally higher. Rains in the Northern Plains this week could potentially slow the already delayed spring wheat planting progress.

Ahead of Thursday’s weekly Export Sales report, analysts are expecting to see 0-200,000 MT in old crop sales for the week that ended May 10. There are only 3 more reporting weeks for the 17/18 MY, with new crop sales projected at 100,000-300,000 MT. Taiwan purchased 83,350 MT of US wheat in a tender on Wednesday, with shipment in July/August.

Jul 18 CBOT Wheat closed at $4.94 1/4, up 3/4 cent

Jul 18 KCBT Wheat closed at $5.14, up 4 1/4 cents

Jul 18 MGEX Wheat closed at $6.11 1/4, up 5 cents


Cotton

Cotton futures finished the day with 44 to 106 point gains in most contracts. The Cotlook A index was up 1 cent from the previous day to 92.1 cents/lb on May 15. Much of the main cotton growing area in TX missed out on hoped for rains Tuesday evening.

Analysts are expecting to see 125,000-200,000 RB in old crop sales in tomorrow’s USDA report. The USDA Adjusted World Price for this week is 75.58 cents/lb and will be updated tomorrow afternoon. China sold 25,652 MT of cotton from state reserves on Wednesday, totaling 85.47% of the offered amount.

Jul 18 Cotton closed at 84.350, up 59 points,

Oct 18 Cotton closed at 82.400, up 106 points

Dec 18 Cotton closed at 80.690, up 58 points

Today’s Market Idea:

The recent COT report showed that large and small traders combined held a net long position of 126,892 contracts. The hefty net long position leaves the market vulnerable to increased selling if support levels are violated; especially if more normal weather emerges in West Texas. Unless there are severe weather hiccups in China, the market looks vulnerable to more selling ahead. July cotton short-term selling resistance is at 85.16 and 85.72, with next key support at 82.77 and then at 81.52.


-R.W.N II

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