Cleaning day. The short is so big that before a USDA WASDE that carry quite a bit of uncertainty, a bit of short covering. Funds bought 8,000 Corn, 1,500 Soybeans and 5,000 Wheat. Risk off before the report and Wheat was the leader, rebounding almost +10 cents in Chicago. The risk on wheat, as far as fundamentals are concerned, is a bit skewed: a big surprise would be more likely to tighten the balance sheet rather than making it heavier, we’re in a period of the year where there’s no potential bearish news but some bullish news could still come from EU or Australia,… However, any bullish news probably won’t change the trend on a long term basis as the balance sheet will remain very heavy. Corn followed in a lower extent (no more than +4 cents on the close), market expect a tiny move on the downside for yield and production in the US. Despite funds buying soybeans, they finished down around -3 cents. Funds buying were meeting technical sells and farmers selling as it now widely expected the US crop to be massive. Minneapolis premium to Chicago took a hit, Minneapolis finishing flat on the front month. On the other side of the pond, a few ticks up for MATIF and CME EU, following Chicago and helped by a lower euro, but nothing major. And there’s still something going on here, market is completely lost with the tiny French crop and the CME EU premium.

 

On the MATIF, it is hurting the volume dramatically. If we compare volume of Z6 expiry with Z5 expiry since the beginning of the respective year, volume is down by -23.13% to an average of only 11,755 lots per day. Since the U6 options expiry, only 8 days with more than 20,000 lots on Z6 while on the same period with Z5 it was 30 days… In a market that is over covered by brokers, this will surely hurt some of them, there will be fight for market share and causalities. CME EU is coming in a bad timing and hopefully market circumstances won’t affect too much, but on top of this the structure of the forward curve is a conundrum: how can one switch transparently contracts from basis MATIF to basis CME EU? If a contract is MATIF+€4, in terms of quality this should be CME EU+€6 or +€7 but with CME EU forward curve at premium that make its more expensive so it is still very puzzling as technically we can see the same wheat having two different flat prices.

 

Anyway, talking about USDA WASDE, US yield is seen at 173.5 bushels per acre on average (-0.9 bushels per acre on average from previous USDA WASDE). Notably, FC Stone, usually pretty accurate, are the most optimistic seeing the yield at 175.2 bushels per acre (+0.8 bushels per acre on average from previous USDA WASDE). SO more or less, it will be -2MT to +2MT on the US corn crop. On Soybeans, analyst are more in agreement, they see the yield at 51.5 bushels per acre on average (+0.9 bushels per acre on average from previous USDA WASDE) but above 52 bushels per acre is still a possibility. So expecting +1.5MT to +3MT on the US crop. World ending stocks are seen up +1.11MT to 73.28MT, mainly driven but US heavier balance sheet. Corn is seen on average at 218.32MT, -1.14MT, pretty logical if US yield is cut but this is subject to a lot of uncertainty there! Finally, wheat is expected marginally up +0.65MT to 249.72MT but once again, surprise from EU and Australia could come. But Black Sea could make it up for +1MT total.

 

Night session is up on Soybeans, +2.75 cents, desperately flat on Corn and up a cent or so on Wheat. MATIF is expected to tick up while CME EU is expected flat so far.

 

Although market was opened yesterday, a lot of US administrations were closed on Columbus Day, USDA being one of them, export inspections and crop progress will be released today. On the Export Inspections, the weekly average needed pace is 1,031kT for corn, 1054.7kT for soybeans and 450.1kT for wheat. On the crop progress, market will take a close eye on condition and progress. The big question is: has hurricane Matthews had an effect? It’s been rainy in some parts indeed, but harvest has most probably not been too much impacted.

 

France is up for a very bad year. With a spring and early summer too wet, wheat, barley and rapeseed crops have suffered. We know that. The end of the summer has been really dry ad non-irrigated corn is going to yield very poorly as the harvest is kicking off slowly. But next season is also staring pretty bad as winter crops are being planted. Soil is too dry and condition are very far from being good.

 

South Korea flour mills bought a total of 100,000T of Australian milling wheat, Bahrain mill has purchased 25,000T of black sea wheat, just below $200 CNF. Japan is seeking 100,143T of food wheat, from US and Canada.

 

Oil received the fundamental boost it needed to close significantly above $51. Russia said they’d be ready to participate to a supply cut. This would be significant indeed. NYMEX Crude is trading around $51.25 and ICE Brent around $53. On Freight, Baltic Dry Index BADI was neutralised by lower demand on big vessels but higher demand on mid-size vessels: index was +1 to 922.

 

GBPUSD is really struggling to invert the fall and is trading below 1.23. It’s dragging EURUSD also, trading now just above 1.11, in a lower extent thought, GBPEUR cross rate is at a multiyear low, lowest level since Q1 2010. Market expect EU to do everything they can to punish the UK for Brexit, making it as tough as possible, in order not to give any idea to other countries. What is interesting though, if Article 50 is triggered in March 2017, it will be right in the middle of the build-up of French Presidential elections and German Federal elections. BBC reported that in Southampton Airport the retail rate for selling GBP was 0.88! This is to compare to the GBPEUR cross rate around 1.1075. Airport bureaux de change  are notorious for having huge bid offer spread (EURUSD bid offer spread was 2,750 pips yesterday in Paris), but hey, one as too see the bright side: there’s very often no commission… Fortunately, as rate is 20% lower than the market! Pretty good business the retail, not only you have huge bid offer spreads but most of the time you can skew it as you know the side of the customer: departure lounge, you sell the local currency, arrival lounge, you buy the local currency! No major stats today, German ZEW only.

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