That was some kind of week once again. Soybeans were down -6.26% on the week and -4.90% for Corn. All about the weather! It’s funny how the mind can switch from drought fear to awesome year. It’s hotter in the US, but not massively hotter than the norm of the season, and it’s raining enough. This succession of hot and wet is pretty good for the yield prospects. That being said, one has to keep an eye on decease as too much rain on the pollination, silking and taselling could become an issue. But so far, the expectations are pretty good. Wheat went up +0.12% over the week in Chicago, probably helped a bit by technical and MATIF. Indeed, MATIF has been on fire! +9.09% in euros over the week, +8.49% in US dollars. There’s a huge uncertainty about the size of the soft crop in France, ranging from 28MT to 35MT but it seems that farmers are really unhappy, in particular with yield and specific weight.
Is the MATIF being cornered as a consequence? MATIF is basis 76 kg/hl with min 74 kg/hl with 1% discount per percent. In other words, going to the physical delivery, buyers are guaranteed to have 74 kg/hl test weight. But on the other side, has enough wheat with these specs been warranted? So if short cannot deliver, they’re going to cut their short, adding to the movement. Or that’s just panic and It will mean revert. All scenarios are still possible.
On Friday, after MATIF U6 posted a +€7.25, MATIF posted another big gain: +€8. Apart from the above, as well, market says that a couple of trading houses pushed the ‘panic hedge’ button after their internal analyst moved their estimates from 36MT to more like 30MT. Panic and stop triggering followed. That being said, it’s only the start of the harvest and the season started really well on higher surfaces, fairest estimates is probably the crop not to be below 32MT, the range 28MT/30MT seems very aggressive and extrapolating the 17% and the farmers mood is dangerous as obviously their interest is to see a market rebounding… There was a bit of fun also in the US, it’s been an eventful Friday, soybeans continued to sink, weather driven and technicals, at some point the level of 1,000 cents was to near not too play with it, and at some point the curve was below 1,000 indeed. Soybeans closed down -24.50 cents. Dull Wheat and Corn in comparison, if Wheat was helped by MATIF and finished up +8 cents, Corn did not follow, struggling to find a direction under contradictory influence from Soybeans and Wheat but finished just up +2.25 cents. As far as Friday is concerned, funds sold 12,000 Soybeans, bought 6,000 Wheat and were even on Corn. When MATIF closed, U6 was trading at a premium of $37.04 to Chicago, $40.07 to Kansas an $11.22 to Minneapolis. For sure France will lose its rank as main EU exporter but with such spread, US wheat will calculate and added to Black Sea abundance, this is far from being catastrophic.
Night session is up +2 to +3 cents on Corn and Soybeans but more significantly on Wheat: +6 cents. Some Adjustment with MATIF might be necessary considering the spreads! However, MATIF is also expected on the upside this morning.
CFTC’s COT was expected quite anxiously as a big short on wheat could have surprise operators. Over the period covered by the COT, Wheat moved down -4.68%, so it was a question of checking if funds had fired a big bullet or not. And they didn’t. Indeed, funds only sold 1,938 lots over the week, increasing their short position to 111,606 lots. Reuters had estimated funds were seller of 8,000 lots, so they did not actually to sold that much and they cannot be the only one to blame for the market dip. No surprise on Corn and Wheat, funds heavily sold more or as expected, Corn officially moving to short -13,362 lots (funds sold 22,064 lots over the week) and Soybeans decreasing their long by 21,715 lots to 137,692 lots. Not long until the Soybeans position is not enough to cover the Corn and Wheat Short and indeed, as funds bought an estimated 6,000 lots of Wheat but sold 17,000 lots of Corn and 24,000 lots of Soybeans from Wednesday to Friday! Corn and Wheat short is in excess of 27,000 lots of the Soybeans long.
Slow start of the week on the currency side, no major news came from G20 or IMF, EURUSD is below 1.10, good US Manufacturing PMI and job data brought back the hopes of a FED’s rate hike. GBP was under pressure at the end of the week on bad retail sales, and bad service PMI. July stats might be bad in the UK but most likely the August stats will show the shockwave of Brexit vanishing. Small GBPUSD rebound above 1.31 this morning. Oil is under pressure around $45, NYMEX Crude is just above $44 wile ICE Brent is in the mid $45’s. Gold is again under pressure, just above $1,316, market don’t really need a safe haven these days, especially if FED is hiking the rates soon. On Freight, Baltic Dry Index BADI begins to struggle after the 2 waves of rebound: -8 to 718.