Note: USDA WASDE heatmaps were done with an automated spreadsheet. See there: https://vinzenergy.wordpress.com/2016/06/11/heatmap-cheat-cheat-usda-wasde-report-excel-vba-macro-automation-wheat-corn-soybeans/

What a swing on EURUSD yesterday, initial spike to 1.1299, and then market violently reverted and bottomed 1.0902! And today market is trading below 1.09. Market still trying to figure out what the election of Donald Trump means for the global markets. The confidence about a rate hike in December has been badly hit, but business will keep going on, Brexit so far is still to prove that it will damage the UK’s economy so a parallel can be done there. US unemployment claims today were better than expected to 254k while French Industrial production was down -1.1% month on month.

 

Indeed, global market was a bit hangover from the US election and they hadn’t time to rest that the USDA WASDE report was on.

snapshot-november-2016

On wheat, pretty boring. The world ending stocks on the old crop was adjusted by +1.37MT due to beginning stocks adjustments in Middle East (+0.13MT), North Africa (+0.45MT) and Ukraine (+0.50MT). Kind of unexpected and it highly contributed to make the new crop balance sheet heavier while it was more likely to be slightly lowered. Indeed, new crop ending stocks are raised by +0.86MT, so the actual contribution of the new crop is negative month on month. EU new crop is adjusted by +0.35MT to 143.57MT. Global use is increased by +079MT, mainly due Canada and Russia (+0.5MT each). So nothing much. Interesting to see that Indian production hasn’t been cut despite the forecast of the USDA attaché, so there’s potentially -3MT still to come on the new crop. World ending stocks are pegged to 243.23MT (this is a very high level, 32.77% of the production and 33.87% of the use, more than 4 month of reserve in other words).

wheat-old-november-2016

wheat-new-november-2016

wheat-old-to-new-november-2016

Pretty dull then on wheat but it was not what was expected to be a market mover anyway. The data that was anxiously awaited was the yield indeed on US corn and soybeans. USDA numbers were above the average of the expectations. On corn it was feared (or hoped) USDA would be conservative… They haven’t and it reflect the optimism on the fields. They rose the yield by +1.9 bushel per acre to 175.3 bushels per acre, raising the crop by +4.27MT to 386.75MT. USDA did not disappoint the market on the bean yield, raising it by +1.1 bushel per acre to 52.5 bushels per acre, raising the crop by +2.51MT to 118MT.

 

Corn old crop ending stocks were down -0.65MT, mainly due to adjustment on South East Asian beginning stocks (-0.45MT). The new crop was obviously heavier on the production thanks to the USA but not only. Ukraine was bumped up +1MT to 27MT. Pretty welcome as on the demand side, the feed was raised by +2.15MT in the US. Therefore, world ending stocks were only up +1.38MT to 218.19MT (representing 21.17% of the production and 21.35% of the use).

corn-old-november-2016

corn-new-november-2016

corn-old-to-new-november-2016

On soybeans, the world ending stocks on old crop are raised by +1.62MT. Export in Argentina are decreased by -0.38MT. The rest is bit and bobs scattered. On the new crop, obviously beginning stocks are up +1.62MT, world crop is raised by +2.87MT (mainly driven by the US crop). US crush is cut by -0.54MT but exports are raised by +0.68MT to 55.79MT. World engine stocks are increased by +4.17MT to 81.53MT, this is 24.26% of the production and 24.80% of the use.

beans-old-november-2016

beans-new-november-2016

beans-old-to-new-november-2016

So a hat trick really, world ending stocks are raised on wheat, corn and soybeans at the same time and USDA did not disappoint by being cautious on yields. The report can be seen as clearly bearish overall.

 

And market was not contrarian and violently reverted the Tuesday gains: Soybeans ended down -19.75 cents on X6, -13.50 on Corn Z6 and even Wheat was down -8.50 cents. Funds sold 23,500 lots of Corn, 12,500 lots of Soybeans and 5,500 lots of Wheat. That being said, if Kansas followed Chicago with -7.25 cents, Minneapolis resisted so well that it ended just in positive territory and the premium to Chicago closed  at 107.75 cents and premium to Kansas to 104.25 cents. In Europe, movements were more moderated, MATIF ended down -€1.00 and CME EU -€0.75.

 

Market is volatile again across the board today. There’s a bit of technical and also speculation that the greater supply will trigger some more demand on soybeans. Also a few adjustments are still do be done and these are likely to decrease the ending stocks. But on top of it, there’s also a US election component with a bit of irrational trading. So Soybeans are up +7 cents, Corn is just ticking up and Wheat is down -3.75 cents in Chicago with still mess across the places as Kansas is only down -2 cents and Minneapolis is up +3.75 cents. On the other side of the pond, MATIF is up a couple of ticks while CME EU is rebounding quite significantly wit +€3.75, bringing the premium up to €14.5… But bid offer spread is not one tick anymore and volumes are consistently lower than 100 lots on the front month… A good delivery process will be the key of success.

 

Rosario Exchange sees the new crop at 52.5MT on soybeans, this is significantly lower than USDA WASDE (57M). On corn, they or in line with the WASDE to 36.5MT. On wheat, they are also more conservative than USDA, pegging the crop to 13.4MT (14,4MT in the WASDE). On its side, the FAO is pegging the world wheat crop to 746.7MT, this is slightly more aggressive than USDA (744.72MT). Finally, in France, France AgriMer marginally increased the barley crop to 10,022kT (+7kT). Soft what is also increased, as hinted previously by the Minister of Agriculture: it’s ow pegged to 28,147kT (+107kT). Durum is also increased by 8kT to 1,568kT. These are more adjustments of a crop that is done and dusted and to hopefully forget. The real adjustment was a cut of the corn crop: -392kT to 11,805kT. Bad year all around in France, corn crop is down -9.6% year on year, soft wheat -31.2%, durum -13.17% and barley -23.1%. It will be tough to do worse next season but never say never. Winter planting could be done in much better conditions…

 

US exports sales were strong. Wheat was 769.6kT, corn 1,233.9kT and soybeans 1,103.9kT. There will still be a few weeks of busy export inspections for sure.

 

Jordan is seeking 50,000T of wheat. Bangladesh received offers for the 50,000T tender of wheat: lowest offer is said to be $248.26 CNF. Only a second offer of $250 was allegedly given. Japan bought 128,636T of food wheat from US, Canada and Australia.

 

Also there’s volatility on oil following the US elections, there will be a few days, if not weeks, were market will behave beyond the rational of fundamentals. That being said, there’s still some doubts about the efficiency and enforceability of the supply cut. NYMEX Crude is trading below $45, ICE Brent above $46. US Crude Oil Inventories showed a greater increase than expected: +2.4M barrels (versus +1.3M barrels expected). On Ethanol, the week showed an increase in demand, the stocks were down 510,000 barrels to 19.23M barrels. This is partially explained though by a lower production (-20,000 barrels per day to 1M barrels per day). On Freight, Baltic Dry Index BADI is keeping going well, not only thanks to larger vessels demand but also mid-size vessel demand is steady. Therefore, BADI is stronger today with +20 to 974. Gold is also volatile, trading currently around $1,280 per ounce.

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