Overall, not a massive week on the weekly scale, just a very bad Monday and we spent the week nervously recovering, wheat really leading the pack in quite a ride (when you zoom in to daily scale, it’s been very nervous and volatile!): 1.81% in Chicago for Wheat. Soybeans manage to finish the week in the green (+0.12%) but Corn failed (-0.49%) but all market finished the week well off their week’s low in quite a range. On Friday, funds bought 9,000 lots of Corn, 6,000 lots of Wheat and were even in Soybeans. MATIF this time did not correlate perfectly, the news of the GASC zero tolerance of ergot weighted on the market. Night session is on the down side, pretty quiet, expecting some sideways trading is realistic. MATIF is down as well, not finding support with the lower euro.
El Niño is slowly fading and market is already talking about La Niña (40% chances of occurring) and potential drought in the US this summer. US drought monitor will be monitored closely but the latest one (5th January) is not showing any concern despite a relatively dry week (well apart from California which is not relevant as far as grains are concerned). It’s generally warmer in the US, this is a very mild winter. There’s some snow cover but it’s pretty thin and winter crops could be vulnerable if temperatures are dropping without bringing more snow. Market is full of ‘ifs’, current situation is good, very good, but there is some uncertainty and any little news can lead the market to reduce its short risk appetite.
Another very short CFTC’s COT indeed… Funds sold over a week (as usual ending on Tuesday) 25,877 lots of Corn, 13,023 lots of Wheat and 16,032 lots of Soybeans, reaching respective short positions of 161,988 lots, 96,143 lots and 79,547 lots. This is a total of 337,678 lots short, huge bet before the tougher part of the winter. But the picture is estimated to be slightly different as of Friday. Indeed, the driver of the move have been Monday, the first session of the year and some short covering follow. And from Wednesday to Friday, fund are estimated to have covered 12,000 lots of wheat, 9,000 lots of Corn and 7,000 lots of Soybeans. The short covering can really go quickly and the position is still very short.
Really market is getting ready for the big fundamental Tuesday. And January set of reports can usually bring their set of surprise. On final productions figures, markets expects on average (Bloomberg poll) 346.6MT for corn and 108.3MT for soybeans. Compared to the November WASDE, this would be unchanged for Soybeans and slightly down for Corn. But for corn, main analysts are expecting a slightly higher figure on a yield improvement. On winter wheat seeding, last year it was 39.461M acres. Market expects a slightly lower surface, 39.32M acres. But this could be the market mover in case it’s still overestimated. The concern seems to be on the HRW surfaces. On the quarterly stocks, December stocks will show an obvious increase compared to September on corn and soybeans (harvest has been in) and a decrease of wheat (harvest was in already in September). Market expects logically higher stocks than December 2014: 46.2MT for wheat, 285.4MT for corn and 74MT for soybeans. Considering the export sales and inspections, this could happen: lower than expected inventories of soybeans and higher inventories for corn and wheat. This could also bring some movement.
Finally on the WASDE… On US corn, market expects slightly higher feed usage but still think exports are overestimated. Will USDA take a hit on exports? At some point it seems to be unavoidable unless there are record exports in the next couple of months, which is unlikely considering the global S&D. So export will be decreased, but will it be his time? There probably won’t be a lot of change in the US corn ending stocks then, if exports are not slashed, stocks might marginally decrease on higher feed usage. Brazil Corn production could be cut -0.5MT while Argentina is seen stable. On US soybeans, ending stocks are seen stable but an increase of 0.5MT maximum still could happen depending on USDA’s assumptions: Chinese demand is there but it this sustainable? It could impact the exports and the crush. Brazil soybeans production will me most likely decreased. USDA attaché in Brazil sees a soybean crop at 98MT, versus 100MT in the WASDE. FC Stone sees 97.8MT while CONAB is at 98.7MT. The irregular rain pattern especially in Mato Grosso is said to be responsible for the 98 figure rather than the 100. So expecting of cut of -1MT is clearly realistic. It might be partially offset with a better Argentinian production. China can as usual be used as a variable of adjustment but no major change is expected on the world ending stocks. On US wheat, it’s probably where the biggest move can happen as what USDA will do is more uncertain, exports could be decreased up to 0.7MT and feed decreased by 0.5MT, making the ending stocks heavier but if nothing is changed, we’ll head to a neutral report. At the global scale, let’s keep an eye on Australian production and EU exports which could both go down. So wheat is a bit of tossing a coin for the world ending stocks, but it probably won’t be major. Market is more likely to react to US plantings.
Bangladesh received some offers for 50,000T of wheat, lowest price is said to be $215.87 CNF. GASC is in for Soy Oil and Sunflower Oil. There was also some recurrent talk Argentinian feed wheat has been sold to US east coast. Also US FDA is said to have rejected a Canadian canola meal shipment contaminated with salmonella.
On the currencies side, it’s been a rough week as well… EURUSD +0.64%, GBPUSD -1.50%, USDCAD +2.38%, AUDUSD -4.45%. Emerging currencies were generally weaker, apart from the Brazilian real which took a breather (USDBRL -1.58%): USDARS +7.28%, USDRUB +2.25%, USCCNY +1.56%. People’s Bank of China set indeed the midpoint exchange rate higher twice last week and Yuan went down for 8 consecutive days. Aussie dollar, the liquid proxy, followed. Market is clearly worried about a bigger devaluation. Macro is clearly back in the headlines, China keeps worrying investors indeed, the growth of the GDP will be the lowest since years and the industrial sector is slowing down. Financial markets started the year on a very bearish note: -10.82% for the Shanghai Composite Index, -10.72% for the CSI 300 Index, -16.72% for the Shenzhen Composite Index… Worries were spread to Honk Kong and Japan (more or less -7%) financial markets in Europe and North America could only follow the bearish trend. And it doesn’t seem to be over, Shanghai falls 5.3% this morning… EURUSD is back just below 1.09 this morning, meanwhile oil keeps digging back below $33…