Singing in the rain. The scaremongering about the dryness in Black Sea has slowed down. Some rain has fallen and more is forecasted. In the US, rain is choosing the best place to fall, basically only in wheat areas, good for good emergence and reestablishing a decent soil moisture. In 4 sessions Chicago Wheat Z5 has lost 33.25 cents. Red across the board, the wether nes is focusing the market back to the heavy fundamentals of wheat, corn and soybeans. Funds sold 6,000 corn, 7,000 soybeans and 5,000 wheat. Since last CFTC COT, funds have sold 20,000 wheat, 15,000 corn and 25,000 soybeans, they are very quick to switch and flip their positions. Market cannot be blamed to proceed to a technical rebound today.
China remains a concern and this could specifically weight on soybeans. Q3 GDP is the lowest since the global financial crisis (still Q3 GDP is +6.9%, -0.1% compared to the previous quarter’s +7%). A sharp slowdown is so far avoided though. Property slump and export weakness is however a concern as well as investment slowdown.
On the US weather side, apart for the rain on wheat, elsewhere it’s good for harvest. Dry and warm. NBC Chicago was advising to take sunglasses and light jacket to get out rather than gloves and coat! And harvest progressed pretty well last week: +17% on corn to 59% and +15% on soybeans to 77%. The harvest is far in front of last year (respectively 30% and 51%) but also in front of the 5 years average (respectively 54% and 68%). So they will be most probably early crop as dry weather is still on for this week. By the way, no change to soybeans ratings (68% G/E and 10% P/VP). On the planting, obviously it is slower, +10% only to 76% of the winter wheat planted. It is however conform to last year (75%) and the 5 year average (77%). Almost half of it has emerged.
Still on the weather side, the UK is also not as cold and dry as it should be and farmers are surprised how fast the winter wheat and winter barley is emerging. They seem excited but scared. Indeed, everything is starting very well but an early cold snap could reduce the prospect prematurely. For sure they’ll monitor the dormancy very closely. Smaller market, the UK consistently produce between 5MT and 7MT of barley and 15MT to 17MT of wheat though.
ABARES decreased its estimate of the Aussie crop, -1.28MT, still to a very decent 24MT. USDA on the last WASDE increased wheat by +1MT to 27MT. Market trusts more ABARES on this data. In Argentina, Buenos Aires exchange is decreasing the acreage of soybeans -0.7M hectares to 19.8M hectares.
Iraq has received a few offers, Russian wheat at $254/T is said to be the cheaper among the US, Australian and Canadian wheat. Japan is seeking 134kT of wheat from US or Canada.
MATIF followed Chicago down really. Quiet MATIF yesterday indeed, a lot of the traders, market makers, brokers were meeting to chat with Euronext to end up the reign of market makers coming to snap deals on options. This is one of the issues of the market indeed, the option order book being empty, a broker need a RFQ and wait 15 seconds to cross a deal, Market Makers are able to show their interest by the meantime and are often blame to annoy rather than showing genuine interests. It seems they want to create a platform where everyone could compete more transparently to a deal (sounds like a tender) and at the same price, the deal initiator would not give up more than a quarter of one of the leg (a bit of a floor spirit there). We’ll see but as long as there won’t be any screen bid and offer on the 10 strikes around the money, transparency and efficiency will be tough to reach. Still no news about the cow boy who crossed a three leg deal leg by leg worse than the bid, Euronext will obviously be very quiet on the issue… MATIF is rebounding today after starting in the red, just like Chicago, but MATIF has still some correction potential and fundamentals are still heavy: with a record crop in France, so Far, GASC only purchased 2.31% of French (60kT) wheat, and this is becoming a real issue. If Egypt’s GASC only imports 4MT, there’s only 1.405MT remaining…
Russian harvest is 96.5% done with 103.1MT of grains harvested, so it could still reach close to 107MT. The end of the harvest as produced lower yield (and maybe it was slightly inflated, the grain lobby in Russia raised the concern already) but it seems that expectations are going to be exceeded. This is 63.6MT of wheat, 18.1MT of Barley and 8.3MT of corn harvested so far.
EURUSD still ranging between 1.13 and 1.14, no real news. Market seems to accept the fact Q4 hike won’t happen and it’s worrying for the Euro that it doesn’t give more strength. Emerging currencies are recovering, Ruble is back to just above 62 and Real back below 3.9.