Phew, what a week! CME wheat only went up 0.24% during the week, but in a very interesting manner! Kansas and Minneapolis went on their side down (respectively -0.71% and -1.28%), the erratic spread behaviors (quality spread in a sense) is clearly demonstrating the price action on wheat is more technical than fundamental. But tomorrow will be the day fundamentals matter: USDA WASDE report! Fasten your seatbelt… 

Market took a breather on Friday with a standard configuration Soybean one direction (up), wheat the opposite (down) and corn right in the middle (on the downside though. That being said, corn is slowly but surely getting farther of this 380 magnet level, the likelihood we’re going to get out of the 370/380 range on Tuesday is pretty high. Implied volatility on options are also still stuck just above 20%, trendless market.

 

Night session is, so far, a copy of Friday, soybeans up, wheat down and corn in the middle (but on the upside this time). Quite quiet.

 

Crop progress later today, nothing massively exciting to expect, November is not the months for Monday night surprises. Soybean harvest will be likely to be above 95% and Corn harvest 93%. On winter wheat planting, the pace will be probably pretty slow but on the good side, the weather has been quite favorable, the soil moisture have been reestablished and there is no sign of severe drought in the corn belt or southern plains, so he planting are done in good condition, the emergence can occur in better conditions and wheat will be nicely ready for its dormancy: an increase in ratings once again?

 

CFTS’s Commitment of Traders were not really surprising for who followed this week… As of Tuesday, Corn funds decreased short position to 24,765 lots (-8,835 lots), they short covered their wheat and were only short -18,241 lots (15,023 lots purchased) and soybeans are now short -20,476 lots (-22,852 lots). From Wednesday to Friday, according to Reuters estimates, the picture has not changed and continued the same way: more wheat bought (6,000 lots), more corn sold (-15,000 lots) and soybeans increased their short position (-4,000 lots). The markets expects a bearish USDA WASDE report (tomorrow, 9pm Dubai time) so the position move is making sense on corn and soybeans. Short bets on wheat are becoming much smaller and the big question is, considering the heavy balance sheet, will they want to move to a long position against fundamentals just based on the fact it’s been dry in Black Sea? Should the bet pay in a few month, well done, but it’s actually betting it will be dry in spring and this is very early to put on a such bet, a lot can happen by the meantime. Anyway, soil moisture is low indeed in Black Sea but the worries are basically similar to last year and the spring rains produced decent crops. Western Europe has on its side see very good conditions for the plantings.

 

Still on the former FSU, the rumor on Ukraine is still not proven true. The Minister in Ukraine reported on the 3rd of November grains exports were reaching 14MT so far this season and confirmed the expectation of a total of 26.5MT, up +1.6MT from last year. As far as wheat is concerned, 24MT where harvested and, so far, it’s expected 16.5MT to be exported, in other words, 68.75% of the wheat crop is exported. There is some buffer there, most pessimistic analyst are expecting a cut of 20% of the production in the next season, but rains can come to the rescue and spring crops may compensate the lack of winter wheat. So even if possible, this exports restrictions rumor is, at the moment, welcomed with skepticism.

 

On the southern part of the globe, the focus is in Australia. After a very dry October where some loss of yield have occurred (USDA will decrease Australian wheat crop tomorrow, market fully expects 24MT and did not put a high level of confidence in the 27MT of the October report) it’s now raining too much! The quantity is not really at risk but harvest has stopped. So the risk is a loss in quality, sprouting, and downgrade into feed wheat. Analyst are saying that fortunately, at the moment, wheat was so ‘thirsty’ that it is still all right but more rain will definitely create a similar problem than in France in the 2014/2015 crop: sprouting, low Hagberg falling numbers, germination of seed on the head, downgrade of milling in feed,… New South Wales is the worst hit. South America on its side is seeing more favorable rains.

 

The most drastic price action of Friday is to put in the account of the FX market and especially US dollar. EURUSD went sharply down bringing MATIF Wheat up to 185.75. MATIF Wheat in euros was up 2.77% last week, but only 0.27% in dollar, in other words, perfectly in line with Chicago. When will the non-USD exposed traders (farmers, coops,…) start to sell? It seems to be the question, but cash flow will be soon highly needed (VAT quarterly payment for example) and euphoria and greed won’t hide the fact it is still a record wheat crop in France and Europe… And with EU export lagging 31% behind last year, a tough wakeup call is totally possible… Anyway, after almost giving up the hope, market is now expecting a rate hike in December with a 70% probability. With little clues from FED’s Yellen like when she said last week the economy was “performing well” and that a rate hike in December is still a “live possibility”. Cherry on the cake, market confidence was topped up on Friday with good US economic data. Non-Farm Payroll were +271k while only +181k was expected! It’s not only above expectations but it’s the highest move since last December. Average earnings moved up +0.4% while only +0.2% was expected. Unemployment rate stick to 5% which is clearly in the target of the FED. Anyway, some analyst are warning FED should wait a bit until these data are demonstrated to be sustainable, an early hike could damage this recovery and have adverse effect. So on Friday, US dollar went down facing other major currencies: EURUSD finished the week at 1.0742 down -2.43% in a week. To follow this week, Chinses CPI (Monday) and Industrial Production (Tuesday), ECB’s Draghi speech (Wednesday), US unemployment claims (Thursday), French and German CPI (Thursday as well) and preliminary GDP (Friday), US PPI, retails sales and consumer confidence. Some opportunity to be volatile! Meanwhile in Greece, a total of 7.604 billion euros are due until the end of December (to treasury bills holders and IMF), and then will move to 2016 where 12.5 billion euros of redemptions are expected (hoped?)…

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