This is always a great fun to see market reaction after a USDA WASDE. On one side, market was expecting cuts of corn and soybean yields and tighter balance sheets, on the other side, the market chatters were discounting those expectations and a more conservative set of numbers was widely expected. So which one was integrated in the market price already? No place for subjectivity, it has been traded for its face value, bearish from last month, bearish compared to publish surveys.

On wheat, the old crop hasn’t changed a lot, world ending stocks are increased by +0.51MT (to 258.56MT) due to an adjustment of the Argentinian production (+0.50MT to 17.5MT). One impressive thing for the old crop is that US has ended the season with 101.74% of stock to use ratio but will face dramatic quality issue next season. A perfect example on how to puzzle the market, should market react on quality or purely based on quantity? For the new crop, US crop was only cut by -0.56MT (to 47.33MT, harvested surfaces remained uncaged, this is the key point, all wheat yield cut by -0.6 bushels per acre to 45.6 bushels per acre), Canadian crop cut by -1.85MT (to 26.5MT) and instead of a tighter balance sheet we got delivered a heavier balance sheet as world ending stocks were increased by +4.09MT to 264.69MT. US production cut is seen as more much more conservative than the Canadian production cut, so there will still be a focus on the September USDA WASDE for sure. Indeed, spring wheat crop is only cut by 0.57MT while market was expecting more something like -0.90MT. FSU is coming to the rescue of the balance sheet again, as Russian production is raised by 5.5MT to 77.5MT to actually exceed last year crop! From one year to another, Russian crop is now set to raise by +4.97MT. Russia is changing the international trade game long term already but the potential of surfaces and yield is still absolutely enormous for the years forward. On the other side, IKAR sees a range of 77MT to 80MT, raising their estimated range by 3MT, Sovecon pegs it to 77.9MT (+5MT versus their previous estimates). So with 77.5MT, USDA is consistent but it really looks like it could still be on the conservative side and anyway, it will be another bumper crop in Russia for sure! Crop in Kazakhstan is also raised by +1MT to 14MT and in Ukraine by +2.5MT to 26.5MT. Hence, world wheat crop is raised by +5.35MT to 753.18MT, down -11.82MT from last season.  That increased the world stock to use and world stock to production ratios to respectively 35.91% and 35.62%, anything but a tight year. However, US crop numbers will still be under scrutiny for the next month, there will be widespread quality issues and still, 48.20% of the worlds stocks are held in China and it is basically unusable (they try to put some to auction recurrently but they struggle getting rid of it). Those elements are to be kept in mind for sure.

On corn, the old crop ending stocks were increased by +1.1MT, thanks to Brazilian crop (+1.5MT to 98.5MT) and South African crop (+0.3MT to 16.7MT) offset by lower use in Ukraine (-0.5MT). But the focus was new crop for sure! The US yield was expected to be cut. It was. But hey, it was pretty close to stay above 170 bushels per acre! Indeed, it was only cut by -1.2 bushel per acre to 169.5 bushels per acre, no change of surfaces, so US crop was only cut by -2.59MT to 359.5MT. Canadian crop was also cut by -0.5MT to 13.9MT. Despite the production cut (-3.43MT total to 1,033.47MT), world balance sheet is not becoming tighter, ending stocks are raised by 0.06MT to 200.87MT, 19.44% of the production and 18.93% of the use. Indeed, lower use came to the rescue, -0.83MT for feed, -1.55MT for non-feed. So this is bearish indeed, but maybe it’s the case the bullishness has been deferred to the next report. However, it’s seems to be a constant, over social media one can see the worst corn cobs the world has ever seen… But the sample seems to be constantly and consistently biased, in a kind of game to find the worst looking corn cob in a field, and very often, the picture is not that bad and how many nice looking cobs are there for one ugly looking cob? But for sure, next WASDE will be to be monitored closely.

On soybeans, old crop came with a good surprise, ending stocks were raised by +2.2MT to 96.98MT, basically lower crush: -1.45MT in Argentina, -0.2MT in Brazil, -0.27MT in the US and -0.20MT in EU. And on top of that… The new crop world production was raised by +2.27MT to 347.36MT. And wait for it… Where does it come from? US! +3.29MT to 119.23MT. Yield is increased by +1.4 bushel per acre to 49.4 bushels per acre. This is interesting in the sense that it would be against the natural correlation to see drastic increase of yield on soybeans versus a significant cut on corn. World ending stocks are raised by +4.25MT to 97.78MT, 28.48% of the use, 28.25% of the production.

So this report is far from being the doom and gloom that was expected and feared. It is however fair to say that the report was highly controversial and will be debated until the next month for sure, a lot of question marks, a lot of answers but some don’t believe them! If conditions are analyzed versus the yield, 2017 would be an outlier year, in other words, a particularly high yielding year considering the current crop ratings. However, market reaction is always what prevails, market is always right! And on the day of the report, market reacted in a bad way indeed, with double digits losses, basically printing losses in excess of -3%. Soybeans fell by more or less 30 cents, Corn -13 cents or so and Wheat -17 cents. Minneapolis went down in excess of -25 cents. International markets resisted pretty well, with MATIF ticking up on the front month and only -€0.50 on Z7. CME EU actually moved up +€2.00 and London Feed -£0.55. This was for the initial reaction. The day after, Friday, Soybeans rebounded 5 cents or so, Corn 4 cents, but Wheat continued to go down, -2 cents in Chicago but still -25 cents in Minneapolis… MATIF fell -€1.00, CME EU -€2.75 and London Feed -£0.35.

Over the last two sessions, funds sold 25,2500 Corn, 16,500 Soybeans and 9,000 Wheat.

US Export Sales were 464.3kT for wheat, 680.4kT for corn and 684.3kT for soybeans.

US Crude Oil Inventories decreased by -6.5M barrels, more than expected. NYMEX Crude ended the week trading around $48.75 with ICE Brent trading at $2.30 premium. US PPI missed expectations and was negative (-0.1% versus +0.1% expected), similarly, Core PPI was released at -0.1% (+0.2% expected). Unemployment claims were +4k above expectations to 244k. Friday, CPI and Core CPI were both +0.1% (+0.2%). UK manufacturing production was flat, as expected. The June trade balance was more negative than expected to -£12.7. In the Eurozone, final German CPI was as expected to +0.4%, WPI -0.1% (+0.3%) was expected. French final CPI was -0.3% as expected. EURUSD ended the week above 1.1825, GBPUSD above 1.30 and GBPEUR just below 1.10.

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