Decent sell off for what is not supposed to be a big market mover! Red across the board in a dramatic fashion! So what was so exciting in this USDA WASDE report? Because funds were clearly on it! They sold 20,000 corn, 9,000 soybeans and 10,000 wheat! Big day! This was Tuesday so this will be taken into account in the CFTC COT. A quick sum up is a wakeup call on wheat (no real change), bearish on corn (heavier US balance sheet and magic from China and Brazil), and bearish US beans. Bottom line, there is no shortage of any kind so far, it was a known fact already, and market cannot pretend to be surprised. USDA do not speculate about the next crop, let’s wait a few month for this. USDA WASDE do not care about dryness on the plantings indeed. Back to known fundamentals.
Wheat: barely no change. EU increased production (+2.01MT to 157.27MT) was offset by Australia (-1M to 26MT) and FSU (-0.5MT to 117.03MT). Use were slightly increased (+0.96MT) and ending stocks then went down -1.19MT to 223.30MT. This is 32% of the yearly consumption and 31% of the production. Ending stocks will be up 7% from one crop to another. So did this worth -13.75 cents per bushel just after the report? Yes and no. No because there’s nothing that has surprised the market there. And yes because markets are back to fundamentals, back to reality. This crop has been excellent and the bull run we had is noise, weather market, pure speculation on the next crop. That being said, market came back from the lows before the close and last traded at -9 cents per bushel, 492.75 cents per bushel on Z5. There’s one comment though to make from this report: Australia. Market is expecting a more conservative 24MT, USDA is still quite above it, seeing October dryness reducing the yields.
Corn: expectations were conservative, US corn yield has been bumped up +1.3 bushel per acre to 16.3 bushels per acre (and 10 states are matching or exceeding their previous yield record). With no change of surfaces, this is mechanically an increase of the US production of +2.51MT to 346.82MT. A decrease in domestic use (-1.27MT) and a shy decrease of exports (-1.27MT) are bumping up the US ending stocks to 44.70MT (+5.04MT). If there’s some bearishness in the report, this is there. Also, market is finding the decreased of exports too little. EU production is down a little -0.25MT to 57.75MT, although this is -24% compared to last year, the worst seems avoided. Same picture for FSU, -1.85MT to 39.91MT (-9% from last year). This is slightly South America: Argentine +1.6MT to 25.6MT and Brazil +1.50MT to 81.5MT. So world production is up to 974.87MT (+2.27MT), and ending stocks are significantly up thanks to a bump up of beginning stocks (+12.18MT!) and a lower use (-9.63MT!). Indeed, we’re back to above 200MT world ending stocks to 211.91MT (+24.08MT). This is the only ‘wow’ factor of the report, a bit of the USDA magic on China as usual, although this time it’s pretty fair on the use (China use are down -10.7MT) but more blurry are the Chinese beginning stocks (ie, ending stocks of 14/15 crop) which are up +18.96MT due to lower feed in 14/15 crop and the lower beginning stock of Brazil (-5MT) of Crop 13/14! USDA raised feed indeed from crop 06/07 to crop 11/12 in Brazil… World ending stocks are 22% of the consumption and production.
Soybeans: in the US, same picture as corn, increased production due to higher yield (to 48.3 bushels per acre, +1.1 bushel per acre). US production is then up +2.54MT to 108.35MT. US ending stocks are only up +1.09MT mainly because of exports up 1.09MT thanks to Chinese demand. Basically no other change at the world scale. Higher consumption and crush in South America and China are bringing the ending stocks down to 82.86MT (-2.28MT). Still stocks are 27% of the consumption and production. Soybeans are still in an ample supplied world.
Brazil CONAB is increasing the soybeans surfaces by 3.8% and is seeing a crop between 101.2MT and 102.8MT, exceeding the freshly confirmed 100MT from USDA. Export are seen growing to 55MT, while USDA has a more aggressive 57MT. Still in Brazil, the truck driver strike seems to have little effect.
The other attraction of the day was the Egypt’ GASC tender. Egypt bought 115,000T of Russian (60kT) and Ukrainian (55kT) wheat at an average of $210.41 CNF. Best FOB offer was from Ukraine ($197.50/T) but extraordinary cheap freight from Russia (less than $7) manage to make it as well. French wheat was the second best FOB ($201.55) but disadvantaged from much higher freight. And now, Algeria’s OAIC is tendering as well for January shipment. A busy week!
So Chicago Corn down -1.77% at the close, beans -0.86% and wheat -1.79%. MATIF wheat fell on its side -1.77%, a lower Euro did not really help MATIF. Night session is rebounding slightly, MATIF opened up as well.
EURUSD continued to sink indeed. It showed up below 1.07! Now bounced back slightly above 1.07. This rebound of US dollar is still to allocate to the same story, a strong shift in expectations: FED will most probably hike the rate in December, well it’s what market thinks…