Hills Capital Management

OVERVIEW:

The grain and soybean markets pressed higher across the board overnight as a combination of drier than expected conditions in the US Midwest and continued strong demand for US crops – especially wheat – spurred widespread trader buying.

With weekly export sales delayed until tomorrow due to the July 4th holiday, focus Thursday will be mainly on weather forecasts and the outlook for the next 10 days or so as large portions of the US corn crop enter pollination.
 

CORN: Dec Corn Called 3-5 Cents Higher

CBOT Dec corn rose 5 ¾ cents per bushel overnight on decent trader buying as less rainfall than expected fell on the corn growing areas in recent days.

Thunderstorms that had been in many outlook models failed to materialize, while precipitation expectations for next week have been lowered in recent models to paint a generally supportive picture for the corn market over the near term. Forecasts for hot weather over this coming weekend in the Midwest are also being viewed as supportive for corn over the near term, as any sustained bouts of dry heat could lead to a lowering in soil moisture levels just as the corn crop enters its most moisture-dependent growth period.

So near-term focus will return to the weather outlooks for the Midwest, and any further paring back of precipitation expectations for the next 10 days or so will raise concerns of heat stress potentially damaging the corn crop during the crucial period of pollination.

There was little news of note overnight, although corn deliveries remain at fairly chunky levels at a total of 1,369 contracts of which were both issued and stopped by the street.

WHEAT: Dec Wheat Called 8-10 Cents Higher

CBOT Dec wheat climbed 9 ¾ cents a bushel overnight to recover some of the ground lost earlier in the week on profit taking.

Strong foreign interest in US wheat was the main source of support overnight, as Egypt, Jordan, Iraq and South Korea were all in the market for some chunky tonnages.

More rains across the US Plains – where harvest is already well behind schedule due to wet, muddy fields – also buoyed prices overnight.

Reports of further strong demand for US wheat will remain supportive over the near term, but from a technical perspective there remains a chance that prices will endure another pullback after global wheat values recently stretched to 11-year highs.

Chart-based selling and profit taking dented values earlier in the week, and we would not be surprised to see additional technically-inspired sales going forward.

Overall, this could make for some choppy price action, so allow wheat values a fair bit of room to maneuver over the rest of this week.

Deliveries for the wheat market remain on the lighter side with only 20 deliveries with no real commercial interest as street names were seen as both issuers and stoppers.

SOY COMPLEX: Nov Soybeans Seen 10-12 Cents Up

Soybean futures witnessed fresh buying interest overnight, likely on the heels of what seems to be a wheat-led rally. There wasn’t much in the way of fresh bullish news over the holiday on Wednesday, although there were several stories concerning the bio-fuels sector that may have added to the friendly tone of trade.

Furthermore, wire reports of an interview with commodity investment guru Jim Rodgers basically stated that he remains friendly to commodity investments in general and the Agarena in particular.

Deliveries against the July contract remain a feature, and are still heavy for the soybeans with 2,975 contracts issued for delivery, of which ADM was a noted issuer of 42 lots. The only noted commercial stopper was Term, who stopped 37 contracts, with street names accounting for the balance of issuers and stoppers. For the products, meal deliveries were light at 13 lots, all issued and stopped by the street. Soybean oil deliveries totaled 871 lots, issued by the street, with Term a noted commercial stopper of 96 lots. It was also noted that receipt registrations for soybeans were up 464 contracts, and soy product registrations were on the decline with soy oil down 179 lots, while soybean meal registrations declined by 30 lots.

Looking to the cash markets, US cash markets appear largely steady while South American basis levels were seen a bit firmer.

As previously mentioned, news over the Independence Day holiday was fairly light, but there were some stories of interest surrounding the biofuels sector. Apparently, the EU trade chief made some statements saying the EU would likely be better off opening up to imports of green fuels rather than try and use domestic production to meet biofuel use goals down the road. And this would imply that the EU would have to lower hefty import tariffs in an attempt to make imports a more viable option. Also stories concerning Malaysia enforcing biofuel blending mandates, and S. Korea planning to raise biodiesel content in domestic diesel as early as 2008, were also noted.

Looking to the weather, we haven’t seen much change to US forecasts, but it would seem that the Midwest looks to see some chances for hot temperatures over the rest of the week. However, forecasts don’t seem to show any prolonged heat threats. Also, showers that are expected to move through major growing regions early next week may bring a little less precipitation than previously thought.

For today, the market looks set to start at least 10 cents higher, and we’ll see if the investment community is here to back the rally at higher price levels. The future of global supplies remains questionable now that year-on-year US acreage is reductions are even steeper than previously thought, and this remains a longer-term bullish theme that will underpin values and tighten domestic and global balance sheets.

OVERVIEW:

Corn and wheat remained on the defensive overnight as fresh rains in key corn growing areas and the continuing winter wheat harvest ensured sellers had the upper hand on both markets throughout.Soybean prices firmed slightly as the weather outlook for that crop remains unclear, but the overall bias of the CBOT agricultural arena is expected to be softer over the near term so the beans will struggle to sustain hefty gains over the near term.

CORN: July Corn Called 2-4 Cents Lower CBOT Dec corn futures closed out the night session 3 ¾ cents lower after rains throughout the Midwest over the weekend, and in the forecast for the coming week or so, further alleviated dryness concerns for the US crop.

OVERVIEW:

Further forecasts for rains across recently dry Midwest growing regions continued to weigh on corn prices overnight to extend the heavy fallout seen Tuesday. Soybeans were dragged lower in tow, and both of those markets look set to start on the defensive again Wednesday. Wheat managed to perk up a tad overnight as the market’s attention returned to the bigger picture worries about potential global production shortfalls, and the fact that the US winter wheat harvest remains behind schedule.

OVERVIEW:

The grain and soybean markets nosed higher overnight as updated weather models scaled back rainfall coverage expectations for US growing regions to renew concerns about dryness impacting the development of the US corn crop. Positioning ahead of this morning’s weekly export sales report also offered support overnight. By and large, the sales totals this morning were pretty decent across the board, and so should offer some support to prices in early dealings Thursday. However, the weather will remain the primary driver of price direction for the near term, so expect prices to continue whipping around in response to every changing forecast. 

OSLO, June 20 (Reuters) - Investment in renewable energies such as wind power and biofuels leapt to a record $100 billion in 2006 and worries about global warming are likely to sustain the boom, a U.N. report said on Wednesday.  The flood of cash meant that clean energies had shaken off a fringe image compared with fossil fuels and seemed robust enough to survive any fall in high oil prices, according to a 46-page study by the U.N. Environment Programme (UNEP).   “Renewable energies are no longer subject to the vagaries of rising and falling oil prices — they are becoming generating systems of choice for increasing numbers of power companies, communities and countries,” said Achim Steiner, head of UNEP.  UNEP said investment capital flowing into renewable energy and efficiency technologies rose 25 percent in 2006 to $100 billion from $80 billion in 2005. That total was likely to leap to around $120 billion in 2007.     Growth “although still volatile…is showing no sign of abating”,  the report said.     Steiner said the report showed industries in rich countries were no longer dominant in renewable energies such as wind, solar, biofuels, hydro, tidal or geothermal power.     Almost 10 percent of the 2006 investments were in China, he said.  India was the biggest net buyer of companies abroad in 2006, led by takeovers by Indian wind turbine maker Suzlon <SUZL.BO>, which is planning a European listing.     The report said worries about climate change, high oil prices averaging more than $60 a barrel last year, efforts to break dependence on energy imports and government incentives to shift away from fossil fuels had spurred investment.      

WIND, BIOFUELS, SOLAR

     The report, prepared by UNEP with London-based New Energy Finance, said the wind sector won most investment with 38 percent of the total, ahead of biofuels on 26 percent and solar power on 16 percent.  Renewable energies are a key to fighting global warming, widely blamed on greenhouse gases from burning fossil fuels. A U.N. panel has projected that emissions will cause more floods, droughts, disease and rising oceans.     Of the total of $100 billion, the report said $71 billion included initial public offerings and spending on research and development of sustainable energy while mergers and acquisitions added almost $30 billion.  UNEP noted that gains by many renewable energy stocks had far outpaced rises in world stock markets in recent months but toned down comparisons with Internet stocks which surged in the late 1990s before the dot-com collapse in 2001.  Unlike dot-com firms, the report said renewables were based more solidly on existing technology, that many companies were generating strong revenues and had regulatory support.     “Betting on companies that already have technologies is easier than betting on companies that are developing the technologies of the future,” Eric Usher, head of UNEP’s Energy Finance Unit in Paris, told Reuters.  The report said that renewable energies accounted for 18 percent of investment in world power generation, or $21.5 billion, compared with 2 percent of installed capacity.  The report also said the International Energy Agency, which advises rich countries, seemed conservative in forecasting that renewables would account for just 9 percent of power generation by 2030. UNEP scenarios ranged up to 23 percent of the total.

NEW DELHI (Dow Jones)–The delay in the advance of the monsoon to central India by nearly 10 days is so far not a cause of worry for soybean planting, a senior industry executive said Wednesday.   Soybean is one India’s main summer-sown oilseed crops that is primarily sown in central India. Its output partially determines the volume of the country’s imports of edible oils.   “At this point of time, (the delay) is not a cause of worry because plantings of soybean go on until the second week of July,” said Rajesh Agarwal, spokesperson for Soybean Processors Association of India.   He said rains have taken place in some parts of soybean producing areas and the monsoon is expected to set in later this week.   “Soybean plantings will gather momentum in the next five days and it is anticipated that the total area under the crop will increase in 2007 because of remunerative prices for farmers last year,” he noted.

OVERVIEW:
Fresh concerns about wheat production shortfalls spurred another wave of buying and short covering overnight that lifted the grain and soybean markets higher across the board. Wheat was the leader of the pack once again after analysts Strategie Grains announced that it expects lower EU grain output in 2007 due to drought in the region. Reports that the Ukraine may lose 10 million tons of wheat production due to drought was also supportive. Overall, continuing concerns about low global inventories and inadequate production should keep these markets prone to whippy movement. Weekly export sales this morning were pretty decent, while the NOPA crush figure was a tad on the soft side.

CORN: July Corn Called 4-6 Cents Higher

CBOT July corn futures closed out the night session 6 cents higher at $4.10 ½ a bushel – its highest overnight close since March 23. Overspill buying from the red-hot wheat market, as well as continuing momentum-based interest, provided much of the fuel overnight, and certainly kept selling interest scarce. Also supportive was news that China plans to tax corn exports in a bid to cool its domestic market, which once again reinforced the overall theme that surging demand is outpacing production prospects. Bullish chart developments also spurred buying, as prices rose beyond previous resistance areas to spark bursts of short covering and automated speculative buying. Overall, there are multiple reasons to buy into this market right now, and not very many reasons to sell, even with the prospect of a near record sized crop in the US. Even the weather conditions also remain friendly to corn, as few forecasting models can agree whether or not rains are likely to fall in currently dry growing areas. Consequently, expect additional price probes higher going forward amid jittery conditions, although bursts of profit taking can’t be discounted given that prices are now at their highest levels for months. Export sales this morning were 586,700 metric tons for combined old and new crop corn, which in line with trade estimates and up on last week’s levels. This morning, another sale of 115,000 tons was announced to an unknown buyer.

WHEAT: July Wheat Called 7-10 Cents Higher

Wheat prices continued to rally overnight to extend their strong gains after a private research firm cut its EU wheat crop estimate to 276 million metric tons from 279 million tons previously due to drought, and in the wake of the Ukrainian wheat loss announcement. The global production picture seems to be tightening by the day lately due to widespread persistent dryness, and traders are continuing to adjust to the prospect of historically low inventories by either covering short positions or beefing up longs. From a technical perspective the strong price momentum has drawn hefty follow-through, but has also sent off some alarm bells as several moving indicators stray deep into overbought territory. Overall, this has left the market in a jittery mood, as while additional gains look likely over the near term, a sharp pullback cannot be ruled out at some point. That said, few traders will be brave enough to carry short positions into the weekend given that global weather patterns are calling for continued drought in already parched growing areas - so the upside looks set to remain the path of least resistance for now. Weekly export sales this morning came in at 413,100 metric tons, which was above trade estimates and 100,000 abovethe prior week’s total. This will only serve to reinforce the sense of tightness and panic in this market for now as the strong buying came despite the sharp rise in wheat prices, and looks set to spark another burst of short covering over the near term.

SOY COMPLEX: Jly Soybeans Seen 3-4 Cents Up

The soybean market headed higher in overnight dealings in line with stronger rallies seen in corn and wheat. Old crop July futures ended up 5 ½ cents while new crop November closed out the session up 4 ¼ cents. Conflicting weather reports, anticipation of this morning’s sales and National Oilseed Processors Association crush report, added to the positive tone, although the soybean market remains the follower of the neighboring grain markets which have much tighter global balance sheets. NOPA crush figures came out close to expectations at 143.4 million, but still on the softer side of trade guesses of 144-147 million bushels. Other noted figures from the report showed bean oil stocks up roughly 22 million pounds from the previous month and meal exports were roughly 50,000 tons less than April figures. Sales figures were decent for beans this morning at 221,700 tons for old crop, although export shipments were over twice last week’s figure at 351,600 tons. Also, the sales figure compared well with trade estimates of 100,000-250,000 tons. Meal sales were a bit light at 78,300 tons for old and new crop combined, versus trade guesses of 50,000-125,000 tons. Oil sales were hefty at 21,300 tons, handily topping estimates for up to 10,000 tons. In other news, the voluntary broiler report still shows broiler numbers picking up, with eggs set up 3% and chicks placed up 4%, versus the comparable period a week ago. In the news, India has reportedly deferred any plans to cut import duties on edible oils. It was also noted that Asian vegetable oil futures were moderately higher overnight in a bit of a correction as they await fresh export data. News from the biofuels sector sees the Russian government taking no steps to develop a biofuel sector, as demand for such fuels remains limited there. Elsewhere Taiwan is seen developing a biofuel policy, while the Philippines report they have excess capacity at biodiesel plants. On the weather front, near term forecasts are still calling for rain events to favor northern and western growing regions. And apparently longer-term forecast models are in disagreement for the upcoming week, and concerns remain that moisture deficits could be set to expand further from 1/3 third of southern and eastern growing regions to roughly half of the southeastern belt. For today, the market looks to press higher in early trade and all major themes remain intact. Growing conditions remain questionable or less than ideal in the southeastern sections of the US, and this will continue to drive speculative buying interest. However we look set to see some continued liquidation in long soy versus short grain spreads, as global grain situations seem to be coming a bit more worrisome. Furthermore the USDA revealed last Monday that they project the 2007-08 global carryout to be the second highest on record (although substantially down from this year’s mammoth stocks total), so concerns over future supplies may be easing a bit over the near-term. But the longer-term worries still remain in play, and production threats to US crops and domestic and global carryouts are still expected to decline, which will underpin values on any type of sustained weakness.

OVERVIEW:
Drier weather outlooks for the Midwest plus last-minute positioning ahead of this morning’s USDA supply and demand report lifted the grain and soybean markets overnight, and look set to give the major CBOT agricultural markets an early lift Monday. Broadly speaking, the report held no major surprises, but did highlight the overall tendency towards supply tightness that continues to underpin these markets. The continuing dryness in the US Midwest, however, will be the main driving force behind today’s price action. Export inspections are due at 10:00 CT which will provide a fresh glimpse into the state of foreign interest in US crops.

CORN: July Corn Called 7-10 Cents Higher

CBOT July corn gained 10 ½ cents a bushel overnight as the latest weather outlooks for key US growing areas pared back moisture expectations and raised the likelihood of a ridge formation over the eastern Midwest that could lessen the chances to beneficial rains even further. This growing conditions outlook, rather than this morning’s USDA release, will dominate price activity over the near term. As far as the report goes, USDA’s findings featured only minor number tweaking to incorporate 50 million bushel increases in US ending stocks for both the 2006-07 and 2007-08 marketing years. US corn exports were trimmed by 50 million bushels for the 2006-07 year, but left unchanged for the 2007-08 period. Overall, these findings will not alter anybody’s opinion on this market, and will likely keep market watchers fixated by growing conditions more than anything else for the next several weeks. The key issue will be whether the US producer becomes tempted to sell aggressively on the back of the prospect for a historically high crop size, or hold off from heavy selling because of the high demand that triggered the need for expanded production in the first place. Basis levels, export sales reports and other trade data will need to be monitored closely for evidence on prevailing farmer behavior and the strength of foreign demand. This afternoon’s crop conditions report will also be closely watched for fresh updates on how the US corn crop is faring so far. 

WHEAT: July Wheat Called 7-10 Cents Higher

CBOT July wheat futures ended the night session 8 ¾ cents up and look set to carry over a majority of those gains into today’s day session. The USDA’s report this morning was largely bullish for the wheat market, as it featured a paring in US all wheat production to 1.61 billion bushels, and also a cut in 2007-08 US ending stocks to 443 million bushels, from 469 million bushels previously. The weather in the US is also supportive, as unsettled conditions are forecast to prevail across the plains over the coming week or so, which should continue to hinder harvest progress. No real relief is in store for the growing areas in the Ukraine, Russia and other key EU growing areas, so global production issues will remain a concern for traders. This mix of supportive USDA data and uncertain production outlook lifted French wheat futures to fresh 3 ½ year highs overnight, which should offer additionally buoyancy to US wheat prices as today’s session kicks off. 

SOY COMPLEX: Jly Soybeans Called 7-10 Cents Up

Soybean futures traded sharply higher overnight, mainly on weather concerns in drier central and eastern growing areas. July futures ended 7 ¾ cents higher, while new crop November closed out the night trade with 9 ¼ gains. There was very little in the way of fresh news out over the weekend, but we did get some USDA insights this morning. That said, whatever updates the USDA did provide will likely take a back seat to building dryness concerns and uncertainties over the future of US production prospects. As for the USDA report, domestic carryout figures for both old and new crop were left unchanged. On the world front the USDA projected old crop carryout figures to rise roughly 1.7 million metric tons, while new crop is seen falling to 54 million metric tons, which would be just above 2005-06 carryout levels, and the first year-on-year output decline since 1995-96. Both Brazil and Argentina crop sizes are projected to be records for yet another year, and are likely to compensate for at least some of the acreage losses in the US. Looking to the soybean products today, soybean oil values were actually lower overnight in line with declines in Malaysian palm oil futures. Apparently, more follow through selling from Friday’s sharp losses and talks of cancellations of purchases were the factors that allowed futures prices to fall 6% overnight. Furthermore, this morning’s USDA report forecasted a sharp increase in high-oil-content oilseed production, mainly due to sharp increases in rapeseed plantings in the EU. So participants should remain aware of more liquidation in long oil versus short meal type spreads. As previously mentioned, the trade will likely focus on any changes to weather forecasts and fresh insights from the report may have to take a back seat for now if dryness/yield potential concerns begin to mount. However, we will get more insights to that in this afternoon’s crop progress and condition report. That said, most “bigger picture” fundamentals remain largely in place, but there are many uncertainties regarding the future of soybean supplies. Markets look set to open around 8-9 higher this morning, but we did witness life-of-contract highs in both old and new crop soybean contracts overnight, so if participants are still willing to push this market higher, it will likely be on weatherrelated issues, rather than major fundamental insights revealed in this USDA report. 

A Daily Chart Of Screen-Based CBOT July Corn, Wheat And Soybeans Shows How All Three Markets Turned Higher Overnight:

TOKYO, June 4 (Reuters) - Corn importers in Taiwan, South Korea and Japan will look for chances to buy this week, but solid Chicago futures corn prices and rising freight rates could limit a large volume of purchases, traders said on Monday.  Japanese corn buyers will try to fulfil their requirements for the third-quarter period after completing more than 70 percent of their quarterly needs by last week.  South Korean importers are likely to buy corn for arrivals between August and November, while a Taiwan grain importer is likely to seek a combined shipment of U.S. corn and soybeans after the failure to secure the cargo via a previous tender.  “Buyers bought about 220,000 tonnes of corn for the past two weeks through private negotiations as freight rates turned lower,” said a Seoul-based trader. “Sporadic buying will continue this week.”  Last week, the Korea Feed Association (KFA) purchased 110,000 tonnes of U.S. corn for November arrival.  The group will continue seeking one or two cargoes of corn after it had failed to buy 495,000 tonnes of corn in one shot for October and November arrivals due to higher prices in April.  “It is difficult to buy a large volume all at once at cheaper prices. We will separately seek corn whenever prices are dropping,” said an official at the KFA.  An official at Nonghyup Feed Inc., South Korea’s biggest feed maker, said: “We need to cover September arrival corn, but freight rates are still high and CBOT futures are also crawling up.”  Spot voyage fixtures for modern Panamax rates for benchmark U.S. Gulf to Asia routes are estimated at around $73 per tonne, shipping brokers said.�

BEIJING (Dow Jones)–Soybean futures traded on the Dalian Commodity Exchange settled higher Monday, as their counterparts on Chicago Board of Trade rose Friday on weather concerns. The benchmark January 2008 soybean contract settled CNY26 higher at CNY3,338 a metric ton.  Total trading volume rose to 188,880 lots from 126,416 lots Friday. One lot is equivalent to 10 tons.  Concerns surfaced that light showers forecast for this week won’t provide much relief to dry areas of the Southeast, Delta and eastern Midwest.  The concern helped July soybeans to settle 11 1/4 cents higher on CBOT at $8.17 1/2.  Many analysts expect the July contract to rise beyond $8.20 in the near term.  Strong soybean prices also supported futures contracts.  Last week, soybean prices in China’s major producing regions were CNY60-CNY100/ton higher on rising soyoil demand.  Soymeal contracts settled higher while soyoil futures settled mixed.  The benchmark September 2007 soymeal contract settled CNY31 higher at CNY2,575/ton, while the benchmark September 2007 soyoil contract settled CNY4 lower at CNY7,726/ton.   Corn futures settled lower. The benchmark September 2007 contract settled unchanged at CNY1,663/ton.  Trading volume for all corn contracts declined to 93,654 lots from 138,914 lots Friday.