It was the day of the month fundamentals may matter. Did they? Indeed, USDA WASDE report!
On Wheat, the old crop balance sheet has been left more or less unchanged, final Argentinian production is raised by +1MT to 17MT, apart from this, nothing much really. Ending stocks are up +1.08MT to 256.43MT. On the new crop, it’s getting heavier (ending stocks are raised by +2.90MT), obviously the help by the old crop, but also thanks to the Russian crop, raised by +2MT to 69MT (which is down -3.53MT from one season to another). So still no worries about Wheat, if world crop is down by -14.57MT from one season to another, ending stocks are up +4.76MT, reaching 261.19MT, 35.32% of the production and 35.55% of the use, so that’s a very comfortable buffer. That’s a pretty boring report really, and the next few weeks will be quite important on the northern hemisphere, a lot can happen in the US and EU (crops are respectively pegged to 49.64MT and 150.75MT). However, this is better that what the market was expecting (on average ending stocks were expected to 257.77MT). Also, one still need to bear in mind that 49% of these stocks are held in China, EU ending stocks are just 10.53MT so a big issue and the stocks are gone, this would be a game changer as it would be a drastic different picture, it’s quite unthinkable to expect the Chinese stock would somehow compensate a shortage somewhere else.
On Soybeans, the market has also been surprised by a heavier balance sheet than expected. New crop ending stocks were expected on average at 89.44MT and actual is 92.22MT. Most of the move is coming from the old crop, with Argentinian crop raised by +0.8MT to 57.8MT and Brazilian crop raised by +2.40MT to a whooping 114MT. So, the old crop ending stocks are raised by 3.07MT. Meanwhile, no major change on the new crop and ending stocks are revised up +3.41MT to 92.22MT, now only down -0.99MT from one season to another. The world reserves are at a very acceptable reserve, socks are equivalent to 26.76% of the production and 26.7% of the use.
Corn was the only little disappointment of the day. New crop ending stocks were expected at 195.48MT while actual is pegged at 194.33MT. Not a game changer though. The old crop balance sheet became actually heavier, ending stocks being raised by +0.69MT thanks to mainly the South-African crop, raised by +1.1MT to 16.40MT and Brazilian crop (+1MT to 97MT). This is slightly offset by higher world use (+1.49MT). So the hit is obviously coming from the new crop: EU crop is cut by -1.5MT to 62MT, Canadian crop is cut by -0.8MT to 14.4MT. This is partially offset with Ukrainian crop, raised +0.5MT to 28.5MT. Therefore, stocks are cut by -0.94MT to 194.33MT, this is 18.83% of the production and 18.30% of the use.
Specifically on the US side, Wheat yield was pushed a bit higher, to 47.3 bushels per acre (+0.1 bushel per acre compared to last month), increasing the US crop by +0.1MT to 49.64MT, still a -21% (-13.22MT) cut from the previous crop (a combination of lower surfaces, -12%, and lower yields, -10% – mismatch is obviously due to roundups). Corn yield is still pegged to 170.7 bushels per acre, -2.23% from last year on also lower surfaces, -4.96%, so from one year to another, US Corn crop will be down -27.51MT. Also no change on Soybeans yield, still pegged at 48 bushels per acre, -7.87% from last year but surfaces are up +7.13% so crop from one year to another is marginally hit really, only -1.41MT. However, yields can change a lot until the crop! Everything will be more or less up to the weather.
Market reaction was a bit shy, nothing major: Corn ended up +2 cents, Soybeans up +3 cents and Wheat down -3 cents in Chicago but +2 cents in Minneapolis.
CFTC’s COT, as of Tuesday, showed funds operated some decent short covering on Corn, purchasing 71,036 lots, cutting their short position to 127,078 lots. Only 16,000 were expected. They also cut their short position on Wheat, to 112,413 lots, buying 9,192 lots, they were expected to be seller of 3,000 lots. Finally, on Soybeans they increased their short position by 7,962 lots to 101,752 lots while they were expected to be buyer of 7,000 lots. So once again quite a miss on the estimations!
GASC is back in the headlines with a Saturday tender with the return of the ergot shambles: back to zero policy? Saturday plus high danger on the execution, it’s very likely a lot of traders won’t interrupt their week-end for the GASC.
The main macro focus was the UK elections. What a change! It was expected a few weeks ago that the MP Theresa May would increase her majority by a comfortable margin. The rest is history… If she had lost, it would probably have been a better political strategy, giving the hot potato of Brexit to the Labour party in order to blame them later. Not even. It’s a hung parliament, not only she lost seas but on top of this she does not have an absolute majority and would technically need to run an unstable minority government or do a coalition with the Irish DUP (Democratic Unionist Party). They are pro Brexit so the fit is natural but they are also pro Union and much more conservative so getting backed by them will for sure trigger some criticism inside the Conservative party. Theresa May has so far no intention to resign but opposition will bully her and criticism will also come from inside the party so she will be challenged for sure. Some are probably laughing in Brussel and it will for sure not increase her popularity and credibility at the EU Commission. GBPUSD ended the week at 1.2738… Only a few days after touching 1.30, so market is worried about the Brexit process and its smoothness. Also GBPEUR is back below 1.14 after being close to 1.20 mid-May.