Morning Comment – #Wheat #Corn #Soybeans – 07/07/2015

Strange session after a long weekend, trading sideways and market is a bit lost afer a week of heavy and aggressive buying. Market was just expecting the crop report. Soybeans… +2% only of planting to 96%. It seems it’s not going to be finished… Especially in Missouri which is the only concerning state. The germination is slightly backward last year and the 5 year average and the flower stage is in line with the 5 year average. So no concern just yet on the development. 12% of the Corn is silking, slightly behind last year and the 5 year average (respectively 14% and 18%) but the silking is in great conditions: not too warm. Wheat harvest is finally making up its delay and is at the same stage as last year! It’s harvested to 55% (17% in one week), slighty below the 5 year average (59%) but with weather improving, the worries of delays should vanish. 

As per the condition, Corn G/E improved 1%, soybeans unchanged, spring wheat G/E -2% to 70% (same as last year) and P/VP +1% to 6%, same as last year. Winter Whean G/E -1% to 40% (still 9% higher than last year). Market was betting on better improvement overall. Indeed, for the first time, market is finally chatting about the lack of rain! Iowa, Illinois, Indiana and Ohio have finally been dry! The weather in Midwest seems to move forward summer without getting to warm. So it clearly seem to get better. That being said, some crop conditions improvement were “expected” but to be honest it was rather “hopes” than real expectations, it’s a bit early and it would be too quick. That’s what the market has not been overly disappointed by the crop report. Canada is still dry and is so far the main concern of Americas.

 

COT official data was fun. The “floor estimates”, “floor sources”, “person familiar with maters” and other fakirs or prestidigitators predicted pretty badly the COT… Instead of still be short around 100,000 lots, as of Tuesday, Corn was only short 9,214 lots as of official CFTC report of Tuesday! Only 10% of the volume was going through the now closed futures pit, so on big volume days, it’s very difficult to have an accurate estimates where most of the volume is basically out of sight. It’s going to be interesting to see how accurate (or not) will be the COT estimates with the pit now closed. Anyway, Wheat is still estimated to be short -25,000 lots, corn now long 7,000 lots and soybeans long 60,000 lots.

 

Export inspections were on line with expectations for wheat (365kT) and soybeans (197kT) and fell slightly below expectations on corn (839kT). Worse corn loading since 5 weeks, beans are weak but it was largely expected.

 

Soybeans Brazilian producers are talking about increasing the acreage by 1%/5%. Argentina wheat planting is down 150,000 hectares to 3.75M hectares, -15% from last year.

 

MATIF traded red all day long and finally closed slightly up seeing Chicago rebounding. The fears for wheat and barley are now largely unjustified, everything seems pretty good in Barley and Wheat will probably still be over probably 37MT. Corn can become a concern and the rest of the Europe to Black Sea is dry and need rain as well though. But considering the amount of wheat there is in Black Sea (big amount offered last week in the GASC tender), there seems to be some margin. Anyway, market is uncertain and when harvests will be behind us, it might take a smoother trend. Option market was pretty quiet, close to 1,000 U5 180P traded, 500 Z5 185P with delta and 1,000 K6 210/240 Call Spreads with delta.

 

Friday USDA WASDE report…

 

Arabica Coffee price fell more than 50% since the peak of Q4 2015. Starbucks Coffee had increase average prices due to rising commodity costs. Fair enough. But with a 50% collapse, they just announce to increase price again by 1% to compensate hike in salaries and rents. The point is it seems to be a constant in commodity markets: final retail consumer is absorbing rising commodity cost but is never beneficiating of decreasing prices in the same extent, correlation between commodity and final price on retail market are high in bull market but much lower in bear markets. Oil is a perfect example as well, between Jan13 and Jun15, price decreased by 40%. Retail price in the UK only fell by 11%. Taxman and big companies in the middle of the chain are the winners.

 

EURUSD. We’ll know more today. Some disagreement between tough Angela and soft Francois. The perfect Franco-German couple seems to have a few relationships problems in their view of what to do with Greece, but Francois Hollande is clearly seen as the weakest link and Tsipras is trying hard to put him on its side. Today’s meeting should clarify the situation, Europe is likely to come with one voice even if it’s going to be tough debates and arguments. But the big boss might actually be Mario Draghi. ECB said yesterday that the emergency lending will be more or less over, the collateral required for helping Greece has been adjusted, increasing the haircut. So basically Greek banks have 0 ELA availability. They probably won’t open tomorrow and will be getting dry pretty quickly. If there’s no deal, a solution will have to be find. IOU notes in parallel of the euro? Oops… Finance Minister Varoufakis has been sacked for suggesting it to the newspapers…

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