Mostly a technical end of the week, market finished collectively higher on Friday. Soybeans F7 were up +4.25 cents to 993.75 cents, failing to close above the $10 level, still very appealing technically (it’s trading above on the overnight session indeed), Corn Z6 ended +3.50 cents to 345.50 cents and Chicago Wheat Z6 +5 cents to 408 cents, failing on the 400 cents level during the session. Kansas was in line with +5 cents and Minneapolis eased slightly in comparison being up only +2.50 cents. Minneapolis premium to Chicago closed at 121.25 cents and 115.50 cents to Kansas. In Chicago, funds bought 9,000 lots of Wheat, 3,000 lots of Corn and 4,000 lots of Wheat. On the other side of the pond, MATIF Z6 was up +€2.75 and CME EU +€1.50, the CME EU premium to MATIF was still +€15.50 on the close. There will be big winners and big losers on the delivery for sure! First delivery has to go well to ensure the contract success, it’s been trading consistently less than 100 lots per day since 3 weeks but the contract is bringing what Euronext misses: an easier delivery process and more silos. Not long to wait for the first delivery, and MATIF Z6/H7 spread (last 20 days of previous contracts have been quite interesting) could bring more arbitrage opportunity in the balance.
The main movements of the week was once again on the currencies. Trump effect coupled with decent US macro data generally pushed the US dollar higher: EURUSD was -2.44% over the week, GBPUSD -2.03%, AUDUSD -2.89%. EURUSD ended the week at 1.0585, more and more are talking about the parity. Last time market traded the magic 1.000 it was in Q4-2002. Between 2000 and 2002euro was below 1.000 so that would be déjà vu! Else this was not a massively exciting week, a bit messy on spreads though, driven by currency, quality and technical… Very few fundamental news. ICE Canola was up +1.39% in US dollar while MATIF Rapeseed was down -1.14% in US dollar. On the soy complex, Soybeans were up +0.79%, SoyMeal were in line with +0.84% but SoyOil went down -1.13%. Corn was up +1.54% in Chicago and down -1.79% in US dollar in MATIF. Wheat was up +1.24% in Chicago and +0.85% in Kansas. Minneapolis was up +1.78%, premium is increasing, on the same usual story of fusarium. MATIF Wheat was up +1.18% in US dollar and CME EU was only up +0.16%. Lower euro clearly helped, as a matter of example, MATIF Wheat was up +3.72% in euros! London LIFFE Wheat was up +1.75% in British Pound. Despite Britons, mostly on the ‘Remain’ side, complaining about the weak currency (for their holidays), it’s been very good for the UK trade balance. Cumulative seasonal wheat exports (July to September) have reached 712kT, +119% from last year! It is set to be a record at the end of the season. Also, Britons have saved a bit of money avoiding to go abroad and retail sales are surging! +1.9% in October. GBPEUR ended the week at 1.1662, recovering +6.60% from early October. Brexit doom and gloom is still to appear in the macro. It will be another story when Article 50 is triggered… If it eventually is!
Interesting CFTC COT once again. Reuters had underestimated the selloff following the USDA WASDE… It was estimated funds were seller (they were indeed) of 13,500 lots of Wheat, 20,000 lots of Corn and 16,000 lots of Soybeans. The sold much more than estimated, being seller of 21,007 Wheat, 57,102 Corn and 26,087 Soybeans. Funds increased their short position to 132,353 on Wheat and to 85,156 lots on Corn. On Soybeans they decreased their short position to 98,177 lots. Also interesting, despite the funds selling, the market resisted pretty well on Soybeans and Corn. Indeed, Soybeans was down only -0.15% and Corn was up +0.22%. Merchants and industrials were on the buy side. From Wednesday to Friday, fund were on the buy side, buying an estimated 5,000 lots of Wheat, 12,500 Corn and 2,000 Soybeans.
Night session is stronger to start the week, beans are above $10 with +10.75 cents to start the week. Corn and Wheat are following with much less conviction with respectively +1.25 cent and +2.25 cents. MATIF is expected to tick up on the opening and CME EU is expected flat.
In Argentine, Buenos Aires Grain Exchange sees the wheat crop at 12.5MT, +21.4% from last year. USDA is more optimistic with 14.4MT. The harvest is 12.1% completed, slightly behind last year but nothing major. The soybean area is seen down -2.5% from last year to 19.6M hectares, 24.2% is planted (also slightly behind last year but no big deal) and crop is pegged to 53MT (USDA is at 57MT). Finally, Corn area is seen increasing from last year by +27% to 4.9M hectares. In other words, there’s a switch from soybeans to corn but global surfaces would still be higher. So far, 40.3% is planted, ahead compared to last year.
In India, there’ some controversy. Government was pegging the wheat crop to 93.3MT, some are saying it was barely 80MT. USDA is at 90MT with ending stocks at 11MT. If that’s true, there is going to be a huge issue on stocks…
This was the twelfth session in a row on the upside for the freight index Baltic Dry Index BADI. It ended the week at 1,257 (+26 day on day). This is +20.29% in a week, +46.67% so far in November, +162.97% year to date. Oil is starting the week by a rebound, not long to until we know more about the OPEC alleged deal… Iraq will offer three technical proposals to implement the deal. Welcome in the world of broad daylight market manipulation! OPEC will have to come with something for the sake of its credibility, however the big question will be if Iraq and Iran are enforcing the plan, if Russia is joining the effort, and at what price US Shale Gas operator will reopen the high flowing pipes. NYMEX Crude is trading just below $46.50 and ICE Brent around $47.50. Gold has failed to reach $1,200 and is rebounding this morning on weaker dollar to start the week (trading above $1,210 per ounce).
EURUSD is starting the week a tad stronger indeed, back above 1.0625, a well deserve breather after two big weeks. No major move though. GBPUSD is starting the week weaker for 10 pips or so GBPEUR is back just below 1.16. No big macro stat today, tomorrow EU Consumer Confidence will be the only thing that might create a bit of excitement: one will have to wait for Wednesday: EU, French and German Flash PMI’s, the UK’s Autumn Forecast Statement, US Core Durable Goods Orders month to month, Unemployment Claims, Crude Oil Inventories and FOMC minutes! In Germany, Angela Merkel said she will rerun for a fourth term… Recent elections are showing voters are kind of against status quo! Brexit, US,… And French primary elections! Indeed, former president Sarkozy is not qualified for the second round and will retire (again) from politics, leaving voters the choice between Juppé and Fillon, so much more centre right, leaving a bit of space between whoever will qualify and far right. Will Europe get its own election shake up? 2017 will tell.