Another Soybean day moving up by more than +3% and dragging the whole market up, but Wheat short are beginning to feel the pain and there’s some short covering happening there, Wheat finishing up +8 to +9 cents up. Corn stood more or less unimpressed and only finished up a couple of cents or so. Now there’s a big question, is the recent rebound a durable change in trend after months and years of declining markets? Friday’s USDA report could provide an answer to these questions. But it’s a typical weather market. CFTC’s COT as of Tuesday is expected to show funds are long 173,000 lots of Corn and long 245,000 lots of Soybeans while they drastically reduced their wheat short to 60,000 lots. On top of this, which won’t be included in the Friday’s COT, funds bought yesterday 10,000 lots of Corn, 20,000 of Soybeans and 7,500 lots of Wheat. MATIF followed US markets higher and movement is also fueled obviously by concerns on yields and quality on the French crop.
It is still about the weather. French floods are more or less out of the picture and there’s a couple of days of good weather while new rains are expected for the week end. Brazil is pretty cold in the south of the country. China is wet and corn sowing will be delayed. La Niña in the US, the drought in the US (first summer-like temperatures are definitely coming at the end of the week), precipitations above the average around Black Sea,… This is likely to feed the volatility for the next sessions with USDA WASDE, CONAB, export sales,… Fasten your seatbelt and enjoy the ride! Night session is correcting across the board (-5 to -8 cents down across the board) and MATIF also opened lower, so indeed, it could be another shaky day!
Big week for ethanol. US Ethanol stocks were down by 544,000 barrels last week, to 20.23MT. On top of this, production was up by 46,000 barrels per day to 1.01M barrels per day. Ethanol futures have reached the levels of December 2014. As expected, US crude oil inventories went down by -3.2M barrels. NYMEX Crude and ICE Brent were steady, closing respectively at $51.23 and $52.21. They are trading a bit lower this morning. On Freight, directionless Baltic Dry Index BADI continues its trendless pattern, rebounding by +4 to 610. Points. Meanwhile, Gold touched $1,260 per once, weaker dollar as brought investors to bid gold as a refuge.
Russian Government said the rains won’t impact the output of cereals. Meanwhile, Ikar increased the wheat production estimates by +1MT, pegging it to 64.5MT. France Agrimer kept unchanged the French barley crop to 12.518MT but increased exports by 3.70%(+277kT), cutting the ending stocks to 751kT (-186kT). French corn production estimates is raised by 0.46% to 13.067MT and ending stocks are seen at 2.508MT, raising their previous estimates by +3.125%. All wheat crop is still seen at a very high level, to 42.710MT, raising the estimates by +41kT from last month. However, it probably doesn’t include the impact of the recent rain and flood events. They cut ending stocks by -0.93% to 3.547MT (total wheat), the -365kT coming more or less from a raising the exports by +660kT to 20.028MT.
Japan bought 112,689T of food quality wheat, coming from, as usual US, Canada and Australia. As often, they did not make any purchase in the feed wheat and barley tender as the Simultaneous Buy and Sell scheme is not really appealing for traders as they are obviously keener on selling direct. South Korea mills bought 27,000T of US wheat. The ergot saga is coming back in the Egyptian headlines. Earlier during the season, Egyptian authorities said they would as the advice of the FAO to decide to enforce or not a zero tolerance policy on ergot. However, there was rumors that 40,000T of Polish and Canadian wheat has been rejected due to ergot, said to be under the 0.05% internationally accepted tolerance.
It seems like the market has fully integrated the fact FED won’t, unless another surprise is coming, increase the rates on the next FOMC. EURUSD is still directionless above 1.1350. In two weeks, will there be a huge shake up in Europe after the Brexit referendum? There was a debate on TV yesterday between the British PM and Nigel Farage. Observers are clearly giving the UKIP leader, pro Brexit, winner as David Cameron has been dragged by the audience on subjects he doesn’t really want to talk about (immigration mainly) as its main arguments are mostly debating on how doom and gloom it would be on the economy if they are voting to leave. GBPUSD is easing but has still posted a very good rally since early April. Funnily enough, polls are also increasing the Brexit support but either market don’t believe it, either they don’t believe on the bad effects of UK leaving the EU. Latest polls are showing Brexit have a very strong momentum, the ‘Leave’ camp being more or less in the lead with 1%. However, it reminds the Scottish referendum last fortnight, support is increasing and establishment will throw everything to avoid it during the last week and that’s why bookmakers are still highly expecting voter to vote to remain considering the odds they are providing. EURGP cross rate is however on a rally since late May, going from 0.7561 to 0.7850 currently, +3.82% for the euro.