A strong Friday that was. Digestion of the USDA WASDE mainly. But also South American weather came back in the headline as it was wetter than expected: Soybeans ended the week with a +8.50 cents rebound. Still on the weather front, there was almost heatwave, some places in Texas and Oklahoma received summer temperatures, triggering, quite obviously, talks about wheat leaving dormancy early or potential winter kill when temperatures will come back down: Kansas Wheat ended the week with a +9.25 cents rebound, the premium to Chicago increased to 11.50 cents as Chicago was only up +5.50 cents. Minneapolis was up +4 cents. Finally, Corn was following a bit behind. On the other side of the pond, MATIF was flat. In Chicago funds bought 12,000 Corn, 6,500 Soybeans and 8,000 Wheat.


So what about the USDA WASDE? If one look at the new crop ending stocks revisions of the USDA WASDE, this was a bullish report. Market reaction is not contradicting this fact.


On the old crop, obviously no major change on wheat, ending stocks are up +0.28MT thought, beginning stocks adjustment. Interesting new crop data though. World production is cut by -4.45MT to 748.24MT, mainly due to India (-3MT to 87MT) and Kazakhstan (-1.51MT to 14.99MT). To be noted, US exports were increased by +1.36MT to 27.9MT, it will make the following of the export inspections captivating for the rest of the season, it will be a very tight call. Nothing much more to report, ending stocks are down -4.68MT to 248.61MT, this is 33.23% of the production and 33.58% of the use. So it’s a bullish data but within a very comfortable supply: should it actually be bullish then? Well, tough to argue not looking the market reaction backwards, as WH7 went to pay a visit to 450, back to the August 2016 levels. Price action the next few days will determine if the rebound is the dead cat bounce as gradually, the usual bullish seasonality should come to an end. Bottom line, from one season to another, production grew by +1.72% and ending stocks moved up by +3.26%, including a cut of -9.46% of EU production, -29.03% of North Africa’s and -1.03% of China’s, so it takes a lot do destabilize the wheat balance sheet. Surely next crop won’t be helped by a +12.01% on the US crop (lower plantings), but EU should normalise (winter kill risk has been mostly avoided) and FSU, with +10.13% from one crop to another, offers the biggest long term growth prospect as it’s very likely to see a trend of higher surfaces and higher yields, most probably not +10% every  year but for sure Black Sea wheat is going to disturb historically established flows, and lot market shares of other origin on traditional routes, will be very difficult to take back (like French wheat to Egypt… And there’s still a few countries not taking Black Sea, but they will eventually start down a line 5 years).




Moving to corn, no major change on the old crop, world ending stocks are up +0.38MT. On the new crop, world production was increased by +2.28MT to 1,040.21MT. Ukraine (+1MT) and Mexico (+1.5MT) are taking the credit, while it was slightly offset by EU (-0.37MT)… And no change in South America! Well no big deal as Argentina cut is likely to be compensated by a Brazilian increase. But the hike on the supply side was more than offset by the demand side, feed use is increased by +3.04MT and non-feed use by +3.3MT. This is mainly coming from China (+2MT for feed, +2MT for non-feed), US (+0.89MT on non-feed) and Mexico (+0.4MT for feed and +0.7MT for non-feed). So really, this is a Chinese move here, nothing more. World stocks are 20.92% of the production and 21.06% of the use.




But the soybeans were the most expected or feared. Overall zero change on the old crop. It makes it easy. New crop South America was supposed to be the Kingmaker or the Troublemaker. And USDA slightly disappointed the market on the Argentinian side and cut the production by only -1.5MT to 55.5MT. This is seen as aggressive as market feeling is that final production will be around 54.4MT. Brazilian production has been left unchanged at 104MT. World production is down -1.23MT to 336.62MT. US balance sheet has been left unchanged, export will eventually be bumped up but there’s some conservative concern here, the extent of the slowdown in export for the second part of the season is unknown as Argentina, Brazil and Paraguay will have 168.67MT of production all together (50.11% of the world production) out of it 43.75% will be exported, where will China direct its demand is the key. Chinese balance sheet has also been left unchanged. The main other change is an increase in the Argentinian crush, +0.6MT. World ending stocks are down -1.94MT to 80.38MT, 23.88% of the production, 24.30% of the use.




So yes, a bullish report all other things equal. But it’s tough to forget the fact that it’s the third year in a row that the cumulated amount of wheat, corn and soybeans are above 2bT.


On the CFTC COT, there was a little surprise. Reuters estimated funds were buyer of 11,000 lots of Soybeans over the COT’s week ending Tuesday, but they were seller! They decreased long position to 150,314 lots. Obviously in a movement to take a bit of risk off before the report. There was also an under estimation on the number of Wheat and Corn funds had bought, it was respectively estimated at 10,000 lots and 14,500 lots. But in fact, it was 16,540 lots for Wheat as fund decreased their short position to 82,547 lots and 25,372 lots for Corn as funds increased their short position to 28,833 lots. All of this is missing the post-USDA fun and funds are expected to have bought 17,500 Wheat, 7,000 Corn and 9,000 Soybeans from Wednesday to Friday, taking the aggregated long just above the 130,000 lots mark.


It was a bullish week across the board obviously led by the USDA report and the weather concerns in South America. ICE Canola went up +2.38% in US dollar, MATIF Rapeseed up +0.83% in US dollar, Soybeans up +3.12%, SoyMeal +3.17%, SoyOil +2.22%, Corn +2.53%, MATIF Corn +0.12% in US dollar, Wheat +4.36%, Kansas +4.54%, Minneapolis +2.55%, MATIF Wheat +0.13% in US dollar, CME EU Wheat -1.46% in US dollar and London Feed Wheat +0.34% in US dollar. Meanwhile, EURUSD was down -1.33% week on week, GBPUSD +0.03%, USDCAD +0.43%.


Night session is lacking of oomph after the USDA craziness. Soybeans are correcting -6.50 cents, Corn a couple of ticks down and Wheat a cent down. MATIF is expected flat.


Oil is stuck in the range. If OPEC did 90% of its cut it is the same story in the US: rig count is increasing! It reached a 16 month high. Should it continue, OPEC will have an issue, its cut has not rebalanced the market, so more would be necessary. NYMEX Crude is currently trading just above $53.50, starting the week on a little lower note, ICE Brent has a $2.7 premium. On Freight, Baltic Dry Index BADI was down -5 to 702 on Friday and printed -6.65% last week and is down -26.95% so far this year, mainly driven by lower demand on the larger vessels segments and the fact splitting big vessels in several smaller vessels has been profitable.


Slow start of the week for currencies, EURUSD is rebounding gently and trades around 1.0650 while BGPUSD is back just above 1.25. No major stats today, just the preliminary Japanese quarterly GDP, lower than estimated to +0.2%. USDJPY is rebounding and trading above 113.50. Tomorrow, preliminary quarterly German GPD (expected at +0.5%) and ZEW (expected at 22.3), quarterly Flash GDP (expected at +0.5%) for Eurozone, UK CPI (Expected at +1.9%) and US PPI (Expected at +0.3%).

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