Market finished lower on Soybeans (-7 cents) and Corn (-2 cents) as weather is getting better and this week is expected to be much better in terms of harvest progress. Fears from Australia are not taken massively seriously an on top of this, Lanworth still expect record crop. Rains are early, early October rains above average is not usually a big issue. Wheat was mixed in Chicago, the 2 front months were down and the curve up with the contango increasing. Minneapolis was higher again and finished +5.50 cents up, on the same stories, a lot of fusarium in Canada. Kansas followed and was up +0.25 cents. In Chicago, funds sold 4,500 Corn, 6,000 Soybeans and were even on Wheat. MATIF was just ticking down and CME EU was up a couple of ticks, increasing again its premium. If the premium is due to pure market technicalities or an unfair arbitrage by silo operators, some will take a nice slap and will be reluctant on trading it. In a year where the quantity is poor and the quality is also pretty poor, there is no genuine reason to discount better quality wheat. So selling CME EU versus MATIF is still the logic trade. Some say they expect the MATIF Z/H spread to go drastically lower again so in fact they are selling MATIF versus CME EU. Why not but at some point, if CME EU is not reflecting the physical market, there will be a clear dangerous issue as it would be tough to justify using it as a hedging tool.
Back to Lanworth, they said they keep their estimates at 108.32MT for the US soybeans crop. USDA is pegging it at 114.33MT. From satellite images, some private models give 52.2 bushels per acre (versus 50.6 in the USDA WASDE). So the soybean crop is still subject to a lot of disagreements but more or less everyone agrees this will be a record. On Corn, they are also lower than USDA to 378MT (WASDE is at 383.38MT).
US Export Sales today, market is expecting 400kT/600kt on wheat, 750kT/950kT on corn and 1.1MT/1.3MT on soybeans.
Stronger night session across the board as there’s a bit of risk off before the tomorrow’s stock report and soybeans are still on the 950 technical attraction: will it close this time above? Soybeans +9.00 cents, Corn +3.25 cents, Wheat +2.75 cents. MATIF is ticking higher while CME EU is flat.
South Korea’s KFA is seeking 100,000T of soybean meal and 130,000T of corn. China keeps struggling selling its ageing corn stock but is managing to sell it bits by bits, they auctioned 44,210T from 2013 and 2014 while a total of 4.69MT was available. Tunisia bought 67,000T of corn at $182.67 CNF average. They also bought 42,000T of durum and 25,000T of feed barley. South Korea Kocpia bought 55,000T of corn at $191.30 CNF. Japan did not receive any offer in the not so popular SBS tender of feed wheat and feed barley but did buy 125,775T of food wheat from US and Canada. And finally, how expectable… Jordan cancelled the wheat tender. In Egypt, GASC is seeking 50,000T of raw sugar.
They finally did it! Worst case scenario market was expecting was a freeze. We actually got better! Indeed, OPEC said they reached a deal to cut the production, it’s the first time since 2008! Obviously market rebounded and NYMEX Crude is currently trading below $47, currently just below and ICE Brent has a $48 handle. OPEC said they will limit the production to 32.5/33.0 million barrels per day. Considering the August output, 33.2M barrels per day, this is quite marginal hey! Seems like they really wanted to put the word ‘cut’ in the press release while the move is actually very little and they have not published a lot of details about the move. Frontier between lobbying and market manipulation is pretty thin! Goldman Sachs said quite fairly “compliance to quotas is historically poor, especially when oil demand is not weak”, especially with Iran quite open about the fact they will establish their market share whatever it cost (in other words, cuts is for others, on a serious note, we’ll have to wait for November to know the quotas per country). So it’s actually welcome with a bit of scepticism in the market. And it comes as a bullish news also came from the US: US Crude Oil inventories were expected higher +2.4M barrels and actually it was a net withdrawal, for the 4th week in a row, to -1.9M barrels. US is the biggest petroleum and other liquids producer in the world, so tough to say which news explains more the rebound… On the ethanol side, it was a bearish week: higher production but much lower demand. Indeed, US weekly output raised by 8,000 barrels per day to 989,000 barrels per day but stocks went up +562,000 barrels to 20.58M barrels. On freight, after Baltic Dry Index BADI topped at 941 on Friday, it has decreased since then and is now back at 912, following the softer demand for bigger vessels.
Still no big movement on currencies, EURUSD is stuck between 1.12 and 1.1250. Yesterday US Core Durable Goods Orders was ‘less worse’ than expected, to -0.4% month on months (expectations were -0.5%) while Durable Goods Orders were also ‘better’, flat month on month (-1% was expected). So nothing to get excited anyway. Bad unemployment change in Germany, +1k while -5k was expended. Today final quarterly US GDP is expected at +1.3% and Unemployment Claims at 260k. Issues in Japan are still around: retails sales are -2.1% down year on year, worse than expected. USDJPY is stronger this morning, above 101.