Friday, funds bought 7,000 lots of Corn and 500 lots of Wheat and sold 3,000 lots of Soybeans, and the day ended up with a correction on Soybeans, still attracted by the $10 level, wheat was slightly stronger but the curves generally closed sideways and Corn a couple of cents up. The U/X spread increased again on soybeans, the backwardation is not over and it shows there is still tensions on the short term.

 

Overall, this was a week on the upside with a nice effect from lower US dollar on foreign markets. ICE Canola was up +1.69% in CAD and +2.29% in USD, MATIF Rapeseed was up +2.30% in EUR and +3.83% in USD. MATIF Corn was up +0.60% in EUR. MATIF Wheat was down -1.06% in EUR and up +0.42% in USD. Finally, LIFFE Wheat was up +0.96% in GBP and +2.18% in EUR. As per US markets, Soybeans and Corn has led the pack, there is still fears of USDA has been aggressive on its August WASDE yield estimates and could be led to downgrade the yields, especially considering the current weather pattern in the US. But from August, the accuracy of USDA’s estimates versus final yield is usually becoming much better. If it tends to be slightly skewed towards an overestimation, the median error is close to 0%. And on good yield years, the accuracy in terms of percentage is usually better, but the weather still is an unpredictable component. Anyway, Soybeans were up +2.80% on the week and Corn +3.72%. Wheat followed lagging in Chicago and Kansas (respectively +1.07% and +0.60%) except in Minneapolis (+3.31%) as HRSW is obviously still more exposed to adverse weather at this time of the year.

 

The MATIF Wheat is still particular case. Traders are still confused. The French problem is real and strong. But on a macro scale, it seems to be no big deal as Bulgaria and Romania (and in a less extent Baltic States and Germany) are coming to the rescue on the EU balance sheet. And next door, FSU will be tough competition anyway as Russia is becoming the first world wheat exporter. So French operators won’t hesitate to import wheat if French wheat is too expensive and they already did so with Bulgarian and Romanian wheat. And on exports, there will be a bit to export, but it won’t be competitive on traditional destinations. So MATIF premium to other markets could gradually vanish.

 

CFTC’s COT was highly interesting. Reuters had estimated that funds bought 3,500 lots of Wheat and sold 2,000 lots of Corn and 2,000 lots of Soybeans. Once again estimations were off by a fair bit. Indeed, funds reduced their short position indeed on Wheat but by 12,917 lots, taking their position to short 105,738 lots. Funds increased their short position to 161,479 lots on Corn selling much more than anticipated: 24,402 lots. Finally, funds decreased their Soybeans long position to 101,900 lots, selling also more than expected: 11,095 lots.  What is interesting is that although funds sold Corn and Soybeans, market, over the week ending Tuesday, moved up respectively +1.63% and +1.44%. In other words, there was some good support coming from producers and merchants and funds were on the wrong side. It’s estimated from Wednesday to Friday that funds bought 5,100 lots of Wheat, 22,000 lots of Corn and 1,500 lots of Soybeans, taking more or less the funds to short 100,000 lots of Wheat versus Soybeans and Short 140,000 lots of Corn. The big question is that even regardless of the side, is the difference of position between Corn and Soybeans justified at this time of the year?

 

And it might become slightly nervous despite the second half of August school holidays mood while a lot of traders are away from their desk. Indeed, it’s still all about the weather and there’s heavy rains hitting the US. Wisconsin, Illinois, Indiana, Minnesota, Iowa, South Dakota, Nebraska, Missouri, Kansas, Oklahoma and Texas have been showered quite a lot with thunderstorms during the past few days and flooding are reported in Indiana, Illinois and Missouri. But so far market seems not really in a panic mode, and the risk weather risk is probably more focus on beans than corn, slightly more water is needed to flood corn fields than soybeans fields…

 

Export inspections are expected today as usual. Soybeans need 919.2kT (the 10 week average is 488.5kT only), corn needs 2,008.1kT (10 weeks average is 1,340.1kT) and the urgency is pretty high as the season is ending on the 31st of August and the last week won’t be a full week (so actually more is needed). Interesting to get reminded that USDA increased old crop exports for four months in a row in the WASDE reports for corn, a five months for soybeans: this is +6.99MT since April for corn and +5.18MT since March for soybeans. It’s very likely to the export targets will be missed. Shall we expect a downgrade on exports? Probably not as there will be some usual data smoothing and crop year reallocation. Most recent example is on wheat, old crop exports: exports inspections officially reached 20.248MT, which is off 842kT of what is in the USDA WASDE balance sheet…

 

Tunisia bought 50,000T of durum at $255.995 average.

 

Also expected today crop ratings, surely spring wheat will be hurt but importance is pretty secondary and quality still very decent. Focus will be obviously be on corn and beans expected from stable to -2% of G/E, this will stay however much better than the previous crop and most importantly, we are now past the drought and heat risk.

 

Night session is pretty quiet, Wheat and Corn are losing a few cents while Soybeans are gaining a few cents in a quiet manner. MATIF is expected to tick on the downside but nothing major just yet, but spread action is to be expected. Oil is starting the week on a softer note, the $50 level should be a sticky level but volatility can be expected until the next OPEC meeting in Algeria. Nigerian oil minister said it is unlikely a cut of production will be decided but the outcome of the meeting is expected to support prices as some symbolic keywords might be used as ‘freeze’. Been there, done that and highly anticipated already as NYMEX Crude moved up more than +20% since the lows of early August.

 

On the currency side, a softer start of the week for EURUSD, coming back below 1.13. A bit of nervousness is to expect until the next FOMC as 12% of the market is still expecting a rate hike on the 21st of September. No major market moving stats to expect this week: French, German and EU Manufacturing and Service PMI on Tuesday, German final quarterly GDP on Wednesday, US Crude Oil inventories on Wednesday as well, German IFO, US durable goods orders, US services PMI and US unemployment claims on Thursday and the second estimate of quarterly GDP of the UK on Friday as well as the preliminary quarterly GDP in the US.

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