Strange week last week. Looking at the global picture, it doesn’t seem a lot happened in the north American markers. Canola flattish (slightly down in USD though), Soybeans only small down while Meals where down -2% and Oil up +3%, Corn up +1.4% and Wheat down -1.4%. Interesting though, Kansas Wheat (HRW) was down more than Chicago’s SRW (respectively -1.8% versus -1.4%) and Minneapolis Wheat (HRSW) has been diverging being up +1%. Front months contracts have been very technical with option expiries and spreads, soon we’ll focus indeed on the next contracts (mostly H6). Talking about spread and moving to Europe, MATIF Wheat Z5/H6 spread is giving good entertainment, quite volatile! With basically all the approved silo closed, it can be expected shorts will be rolled aggressively (indeed you cannot go to delivery if your wheat is not already stored in the silo) and therefore spread heavily bid. But on the other side, who wants to buy, now, the front month considering the amount of wheat available? So who will win? The lack of bid on Z5 or the heavily bids on Z5/H6? MATIF Wheat moved in line with Chicago last week though, MATIF corn in dollar was down on the other side. 

On the silo’s story, Euronext is conscious about the problem but doesn’t seem in a rush to act. “I would rather see them open, but a situation where storage space is scarce is not entirely out of the ordinary” said the head of commodities to Wall Street Journal. The reason of the recurrence of the problem is, according to Euronext, that a lot of silos do not want to be approved, and some who want or who could, are too small. Is the an open door for CME and its European wheat contract? Yes but it will be politically very tough: French grain regulated by some US regulations? Tough to add up indeed…

 

Night session in Chicago is red across the board. Argentina’s election results are likely to create a bearish pressure. Macri, conservative, is indeed the winner, and it doesn’t seems to be close by any means, Macri is more or less 6% in front of Scioli. He’s likely to be keen on boosting the exports and competitiveness, farmers expect indeed a reduction of grains export taxes. Argentinian Pesos still on its historical lows to 9.6434, farmers will be in a very good market configuration as far as duty and currency are concerned. We can expect they’re going to stop sitting on their stockpile.

 

Tuesday CFTS’s COT came back, not very surprisingly, shorter on wheat and corn. As of Tuesday cut off, funds increased short position on corn to 84,663 lots (increasing the short by 26,259 lots compared to previous COT) and increased short on wheat to 41,409 lots (increasing the short by 20,464 lots compared to previous COT). Funds marginally reduced their soybeans short exposure to 50,885 lots (buying 1,416 lots compared to previous COT). From Wednesday to Friday, it’s estimated funds kept on selling: 1,000 lots on corn, 1,500 lots on wheat and 5,500 lots on corn, therefore, total short would be 184,957 lots. This is pretty big considering it’s the end of November and some winter weather related concerns are likely to arise whether they are justify or not. Should it happen, short covering could be pretty violent.

 

For example, some US farmers are complaining about the volatility of the temperatures. Indeed, first snows are coming but it’s melting in some parts, wheat is growing pretty well. They need cold and a decent layer of snow for wheat to enter dormancy and be protected. RCG said pretty fairly “fear” will drive the market. However, in Europe, no one complained about the plantings, they’ve been done in excellent conditions and crop ratings are still excellent.

 

As of 18th of November, SovEcon said Russia exported 15.5MT of grains (11.77MT of wheat, 2.5MT of barley and 1MT of corn). This is -9% compared to 2014. Exports are lagging everywhere indeed, US and Europe are also struggling to export (even more than Black-Sea, for example Europe is more than 25% lagging compared to last year). If the next crop is also decent, this will create very heavy grains balance sheets. The lower euro is a great chance for Europe though, to regain artificially some competitiveness, but biggest exports licenses of the season so far last week (635,000T of wheat) will need to get even bigger. Ukraine self-limitation of exports (to 16.6MT) is not really concerning the market so far (there’s plenty of wheat available everywhere else), market will most likely react in spring when we’ll have a better idea of how lower the crops are going to be.

 

Algeria’s OAIC is tendering to buy 75,000T of Barley. Market chatters says Ethiopia is still keen on purchasing more wheat, but no formal tender just yet. Still on big purchases, Afghanistan (who wants to be self-sufficient on wheat within 5 years) has purchased 600,000T of wheat from Kazakhstan.

 

EURUSD still on a sinking pattern, approaching the 1.0600 level. Economist are really fearing consumption and growth is going to collapse for November and December in Europe, especially in France and Belgium, involved at a high level on the terror events. Belgium capital is lockdown, school, metro is closed, news were lock down during police interventions. Empty streets, empty shops, empty restaurant in Paris and Brussel. This is likely to be damaging for the growth especially during the holiday season. Also, military and police budget are going to be massively hit by over expense, EU will close their eyes but some other countries need, for more economic reasons, more relax constraints, so will they be allowed also to not respect the constraints? Contagious effect of budget deficit is totally possible. Should we add some credit event in Greece in December and euro dollar to parity is not a crazy objective. Also, ECB still likely to provide more QE from December and FED still likely to hike the rate. It’s quite probable the end of the year is going to be bumpy for EURUSD.

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