- Crude oil markets have fallen to a new 14 year low of $32.73/barrel earlier today and appear intent on targeting the $30 level (or lower). Technical chart support rests at the 2002 lows of around $20/barrel and abundant supplies together with slowing global growth do not bode well for an immediate recovery. Whilst it would normally be expected that Chicago agri markets would follow lower in sympathy (which they are to an extent) tomorrows USDA reports are providing some support today. Clearly the outside economic world leans bearish for now.
- We have an interesting premium in January soybean futures over the March contract (some 19 cents) leaving many pondering why! Fundamentally there looks as if the US will hold as much as 500 million bu carryout for the 2015/16 crop and this would point to the spread being “wrong”. It is possible that damage to the load facilities in the Illinois/Mississippi rivers is greater than currently admitted, which could account for the nearby premium, but this needs to be watched.
- In the US gasoline prices are falling faster than ethanol and blending margins are falling into deep red territory, leaving the potential for further US stock build this week. The speed of decline in US energies is making it difficult for ethanol to keep pace, and falling corn values reflects, at least in part, fears for a bearish feeding demand picture amid negative margins.
- Fob wheat values in the Black Sea continue to decline as volume offers increase and the value of the Russian Ruble and the Kazakhstan Tenge hit all time lows again. Such currency positions do nothing to discourage both production and exports from the respective nations.
- The interesting point in today’s price action was the failure to sustain the early rally and the funds lack of desire to exit their (huge) net short positions ahead of tomorrow’s report. The macro winds are blowing in a deflationary direction and the concern has to be that Central Banks will be unable (or unwilling) to gather sufficient QE support to change the trend. One source described crude oil as the “canary in the coal mine” of what may occur in the Chicago grain markets this summer in the absence of adverse weather in any or all of the US, Russia, Europe or China. The potential for prices cheaper than any had previously thought possible really does exist. Our view is that if the market rallies after tomorrow’s report it will be an excellent short trade opportunity.