Another bounce on Friday to end up the week. The upside move was much more quiet than Thursday but still Soybeans finished up +6.50 cents, Corn and Wheat +4 cents. Funds were obviously again on the buy side, buying 16,000 lots of Corn, 8,000 lots of Soybeans and 6,000 lots of Wheat. MATIF and CME EU Wheat also were on the higher side, up bot +€2.25. The Thursday and Friday moves were mostly a second thought about the USDA WASDE report, technical, short covering and good demand on international tenders with US wishing to be part of the game (there are rumours US wheat were priced for the latest Algeria’s’ OAIC tender). Indeed, US market share on wheat is at historically low levels and considering the amount of grains, they will probably be aggressive if price is around level to compete. It concludes a week where market rebound frankly on Corn and Wheat and considering the report was not massively bullish, one can wonder if we’re not in a seasonal change, at least for wheat as Corn harvest pressure could still happen.
Wheat was up +6.65% indeed in Chicago without massive bullishness from the report. New crop ending stocks are only down -0.70MT versus previous estimates. However, in northern hemisphere, wheat numbers are not set to change and winter wheat is getting planted, so there won’t be fundamental news until a few months: of course the usual ‘not enough soil moisture’ and ‘winter kill’ are going to come on board in the next few weeks and month, giving a biased risk on the upside. It has even started in France, wheat planting have started and some begin to speculate about another 30MT crop (yes in 2017) as the conditions are really dry. There’s a bit of time to worry and as usual, the spring rains are the most important factor. So funds can indeed wonder what bearish news could come until march and take profit. Especially when a bit of (relative) bad news could still come from Australia or south America and cutting the world production by -2MT to -5MT who knows. Kansas was up +3.66%, Minneapolis premium got finally hammered, up only +1.25% over the week (premium to Chicago was back to 107.5 cents on the close and 110.75 cents to Kansas). In Europe, the euro weakness have also helped: MATIF Milling Wheat was up +4.30% in euro and +2.16% in US dollar, CME EU +3.68% in euro and +1.55% in US dollar and LIFFE London Feed Wheat was up +3.91% in British Pounds and +1.84% in US dollars. UK exports are set to be very good thanks to the weakness of the currency: thank you Brexit, at least a virtuous outcome! Anyway, MATIF was still at $24.93/T premium to Chicago and $26.12/T to Kansas. The premium of CME EU to MATIF closed at €5.25, there’s still something going on with delivery location discount, obviously seller option but if the buyer can somehow be sure in what silo he will be delivered, there’s a huge potential arbitrage there and the premium could go to at least the lowest location discount after quality discount. Issue with this, it will work once, and it will become a market between market-makers and silos operators with no one else daring to enter a game where the underlying is not logically following the physical. Corn rebound was slightly more justified, +4.27% in Chicago: following wheat and the cut of world ending stocks on the new crop (-2.65MT). Soybeans rebound over the week was much smaller, +0.60%, it’s a case here of following Wheat and Corn as if there was one straightforward outcome of the report, it was on Soybeans, world ending stocks +5.19MT and the increase of the US yield was slightly below what the most credible analyst are forecasting so it could just become heavier again.
CFTC’s COT showed funds cut drastically their short position before the report (week ending on Tuesday, the day before the report). Funds cut their short position on Corn by 31,885 lots to 130,973 lots, cut their short on Wheat by 16,011 and increased their long on Soybeans by 7,902 lots to 73,069 lots. Reuters was drastically off their estimates once again, they estimated funds had purchased 6,500 lots of Corn, 8,000 lots of Wheat and sold 1,000 lots of Soybeans. What is interesting though it’s that market, despite heavy fund buying, did not go up! Wheat, over the CFTC week was only up +0.56% and Corn and Soybeans were actually down respectively -0.65% and -0.26%. Producers, merchants and farmer have sold a lot also, is that a sign they think this rebound is a short lived relief? Anyway, short is vanishing and cumulated short of Wheat, Corn and Soybeans went from basically 250,000 lots to 193,000 lots, and as of Friday it’s estimated to be only 160,000 lots has funds sold 12,000 Wheat, 13,000 Corn and 9,500 Soybeans.
US exports sales, delayed to Friday, were quite good: above expectations for Soybeans to 1,417.7kT, and in line for Corn and Wheat to respectively 903.9kT and 523.1kT. There will be some interesting traffic in the ports, and inspections will be monitored carefully, especially on wheat as it might struggle inbetween heavy piles of corn and soybeans reaching port as harvest is improving. In EU, soft wheat export licences grated reached a good 526kT, 7.3MT total this marketing year. How long it’s going to last? However, it’s in line with USDA expectations. Poland was the biggest exporter last week (138kT), followed by Romania (100kT) and Germany (95kT). Germany is still the main exporter the season with 1.6MT, followed by Romania (1.5MT) and still France (1.3MT). Barley exports were a tiny 19kT, 1.2MT so far this season, tough to imagine it will reach expectations of USDA this year: 6.5MT.
Night session is strong across the board to start the week: Soybeans are up +9.50 cents Corn +1.75 cent and Wheat +1.50 cents. Today export inspections and crop progress will provide the entertainment. MATIF and CME EU are expected mostly flat.
Saudi has booked a total of 610,000T of wheat: 305,000T CNF Jeddah at an average of $208.31, 125,000T CNF Dammam at $211.59 average and 55,000T CNF Jazan at $211.16. There was also 125,000T FOB (German, Poland, or Latvia origins) at $191.33 average. Since the 1st of January they have bought a total of 3.055MT of Wheat, including 250kT FOB. Main discharge port is still Dammam with a total of 1.875MT, average price on CNF purchases since the start of the year is $204.42 (2.805MT), and $194.94 for the FOB (250kT). It’s said Algeria has booked up to 500kT on the latest tender, from $195 to $198, and there’s no consensus about origins: EU, South America and USA. Taiwan flour mills bought 80,650T of US wheat.
After pumping a record of 11.1M barrels in September, Russia said they were ready to cut the production for 6 months. The news is welcomed with scepticism. Oil is softer this morning, higher US oil rigs and higher crude oil inventories are helping NYMEX Crude to be stuck with a $50 handle. ICE Brent us just below $52.
It was also a currency week, EURUSD down -2.05%, dragged down by lower British Pound but also by decent US macro data making the case for a rate hike in December, GBPUSD continued to dig down, in volatile trading: -1.99%. Over the week end, some UK media discover Boris Johnson was actually against Brexit and he chose the leave camp just for his own political agenda. What?!? Are you kidding me??? Seems like a lots of brits deserve the Nobel Prize of Naivety but Boris Johnson for sure played a very good card as far as his career was concerned. Well, he says the unpublished article was ‘semi parodic’… Expectable when his nickname is ‘the clown’!