Another day driven by Soybeans with a lack of conviction on the contagion to Wheat and Corn. So far, market are in a contrarian configuration, having reversed from the bearish USDA WASDE report last week. However, the upside move is still happening in a holiday fashion, volumes are diminished with traders being on vacation. Also, market still fears what can happen in the next 3 weeks that would lead USDA to revise down US corn and soybean yield, but ratings were stable and the fragile phase is now really behind us. Drought Monitor is still showing some drought in the South but still, main Soybeans and Corn areas are pretty safe. Soybeans closed higher +10.50 cents on U6: on the close the 7 first expiries were above $10 And the backwardation has also steepened. The bearish news of Cargill and Louis Dreyfus halting crushing in Brazil (due to too tight margins) did not provide any relief. Corn and Wheat were only a couple of cents up. Funds bought 8,000 lots of Corn, 4,500 lots of Soybeans and 2,850 lots of Wheat.
MATIF was more or less unchanged and the holiday mood was perceivable on Monday (public holiday in France), low volume can lead to a big price move. There’s little news really, we know now the extent of the damages but MATIF has a structural issue: it’s still quite high considering the availability in neighbors countries. And imports from Bulgaria or Romania are not bullish news by any means. France will keep exporting despite the tough shortage. However, exports are expected to reach a 15 years low. But also there will be a reshape of exports destination as traditional clients won’t be able to find the required quality from France and will buy elsewhere. So France will need to find unusual destinations for its exports and it seems it’s happening, a vessel is said to be shipped to North Carolina. But the danger is also in losing market share on traditional destination, will a good crop re-shift the demand back to France next season? And on the supply side, it’s been confirmed a Bulgarian wheat vessels will discharge in Dunkirk next week, most likely for starch and food industry… Or maybe MATIF delivery but that would be tricky! So this is a real reshuffle of France imports and exports this season and the competitiveness of French wheat in and out of the country will be a key component.
Night session saw a reversal, almost like for like. Soybeans closed down -8 cents on U6, Corn just ticked down while Wheat was down -2 cents on the close. MATIF is all about spread action today, the main trend is U6 higher with contango decreasing.
US Export sales were weaker than last year but still at a pretty good level as the end of the season is approaching. Wheat commitments reached 489.5kT, 1,210.1kT for corn and 1,775.8kT for soybeans. The next couple of weeks of export inspections will be quite interesting for sure.
Ethanol production rose by 11,000 barrels per day last week, reaching 1.03M barrels per day. This was not even enough to cover the demand as stocks went down 35,000 barrels to 20.43M barrels. Ethanol futures went down though, typical buying the rumor selling the fact. Crude oil inventories were also down -2.5M barrels (a small build up was expected). Oil is currently trading just around $47 for the NYMEX Crude, while ICE Brent is trying to test $50, so far unsuccessfully as an early spike to $50.05 was corrected pretty quickly. On Freight, Baltic Dry Index BADI has retreated -2 to 685, putting an end to 5 sessions on the upside and so far failing to reach 700.
Jordan bought 50kT of Barley at $189 CNF but failed to buy purchase hard wheat and reissued a tender to buy 100,000T of hard wheat. The tender terms are still seen as an issue by the traders. Japan bought 87,430T of food wheat from US, Canada and Australia. Tunisia is tendering to buy 42,000T of durum.
EURUSD is pretty strong, it appears on the FOMC that there’s still some fear about the job data and the inflation. Well nothing really new but seeing it black and white fueled the rate hike could be awaited a bit more. The implied probability of a hike is 15% for September, 15% for November and 47.4% for December. EURUSD is now established above 1.13. GBPUSD is now well back above 1.30 in the mid 1.31’s. ECB just said the consequences of Brexit might have been overestimated. However, EURGBP cross rate is still toppish, just above 0.86.