What a day on the CME…. The recent rally led CME to increase initial and maintenance margin by more than 30%. The Stock and Planting report of June is usually a market mover and on this side there was no disappointment! Indeed, it’s been a long time with no limit and the winner was corn! Limit Up 30! New limit is 45c/b. Wheat as reached a 6 months high. Funds bought and estimated – wait for it – 40,000 soybeans, 25,000 corn and 17,000 wheat. Funds were like The Good, The Bad and The Ugly: “when you have to shoot, shoot, don’t talk”. Order Books were blinking like a disco.
So what was so exciting in the USDA quarterly report? Corn Stocks were lower than expected (4.447 billion bushels, market was expecting 4,555 on average) this is -43% compared to the previous quarter. But let’s bear in mind this is 15% above last year. Soybeans stocks were lower than expected (625 million bushels, market was expecting 670 on average) this is a drastic 53% lower than the previous quarter but once again 54% above last year level. The good point is there will be some space in the silos to welcome new crop. Wheat stocks were higher than expected (753 million bushels, market was expecting 718 on average). Still 33% less than the previous quarter but 29% more than last year. All things equals, bearish wheat (well market did not showed it) and bullish for corn and soybeans. Market rationality can be discussed: indeed, the decrease from one quarter to another is logic but we’re in a very comfortable situation there. It seems the market is expecting excellent and is disappointed when only good is delivered. On the acreage report, Corn will be 88.897 million acres (0.5% below expectations), -0.3% compared to last quarter estimates but more significantly -1.9% compared to last year’s final. Soybeans fell to 85.139 million acres (0.03% below expectations), -0.6% compared to last quarter but this is still 1.7% more than last year! All wheat are at 56.079 million acres (0.4% above expectations), 1.3% above last quarter but 1.3% below last year.
Does this really worth such a move? Combined with the first delivery day for July contracts, it’s been an insane last 2 hours! Mind is still focus on the current weather and traders seemed to think as of 1st of June (date of the USDA cut off), the data has not taken into consideration the damages of the rains in June. Next week supply and demande (WASDE) report is likely to be a market mover as well, volatility might last for a bit then.
Corn is continuing to move up slightly on the night session while wheat and soybeans acre softer.
MATIF has done the ‘four in a row’. Even with the night session down, MATIF had to open up to readjust to Chicago’s last half hour rally… +3.75 to 205.00 for U5. Correlation to Chicago is a huge factor. Indeed, even if it is dry in Europe, Wheat and Barley crops are developed and ready to be harvested, a few days of dryness won’t hurt the crop too much. The only concern of a long lasting dryness would be for corn. Almost 75,000 lots traded on the new crop, still very decent volumes. On options, big volume as well. A festival of strategies: combo (fence), call spreads (more than 10,000 CS), outright puts,…
India being stuck with a few million tonnes of poor wheat, the government is considering imposing a 10% import tax duty in order to force the internal consumption and to liquidate poor quality wheat. Government is concerned as there is obviously enough wheat to satisfy internal demand and want to avoid to pile up more wheat. South Africa said the corn production will fall by 32% to 9.755MT compared to last year while soybeans will increase by 6% to 1.008MT.
And that’s it, Greece defaulted the IMF! Well, not yet, it is classified as in arrears. Greece will join and lead Somalia, Sudan and Zimbabwe on the list of IMF defaulters. How could Greece pay anyway, there is capital control and foreign transfers are banned! Joke aside, Greece asked for a third bail out of 29 billion euros. Which Merkel refused to discuss before referendum. And it seems to be at a stage Germany allegedly said “no bail out unless Tsipras goes”. Story is far from over then! EURUSD is not really impacted and is just above 1.11.