Kind of scary to switch on the screen after 10 days of blackout! But one has to have priorities… Happy New Year 2018!
At least let’s try to catch up on the last week and the current week (well yesterday as Monday was closed). Although markets were generally up on the Christmas week, no reall rally. Soybeans were up +0.24%, SoyMeal -0.06% and SoyOil +1.04%. Corn was down -0.36% in Chicago and -0.63% on the MATIF in US dollar (EURUSD was up +1.17%). Wheat was up +0.53% in Chicago, +1.18% in Kansas, +0.49% in Minneapolis, +0.23% on the MATIF (in US dollar), +1.17% on the CME (in US dollar, contract is actually dead flat, dead full stop it seems unfortunately) and +0.32% in London in US dollar (however, GBPUSD was up +1.14%, in British Pounds, market was actually down -0.81%). Finally, ICE Canola was down -2.00% in US dollar (USDCAD was down -1.21%) and MATIF Rapeseed was down -0.12%. To be noted, oil was up +3.34% on the NYMEX, the US cold snap is creating a bullish momentum, it was also driven by the outages in North Sea (back to full operation since 30th Dec though) and Libya as well as the unrest in Iran, the third OPEC producer. The geopolitical risk is still there, especially when US President Donald Trump is comparing size with Kim Ping Pong! Oil is still trading higher this morning, above $60, around $60.50 actually, with ICE Brent at a $6.20 premium.
Strong start of the year across the board: Soybeans were up +3.25 cents yesterday, Corn +2.50 cents, Wheat +6.50 cents in Chicago, +7.50 cents in Kansas and +3.25 cents in Minneapolis. MATIF was -€0.50 though but London Feed was up +£0.35. Same strong pattern on the overnight session as Soybeans up a couple of ticks, Corn up a cent and Wheat up +2.00 cents (around +4.00 cents in Kansas and Minneapolis). European markets are also strong, +€0.75 in MATIF while London Feed is weak (-£0.85).
This is driven for sure by the cold snap in the US and the fears of winter kill. Every year market is crying wolf so it is tough to take it seriously. However, for sure, this is much colder than the previous years and the lack of snow cover could lead to some winter kill indeed, at least some decent damage. Radiant Solution (quite credible in theory, the parent company of MDA weather) is speaking about “widespread winterkill”. However, it is always tough to assess and there will always be some scepticism as winterkill is like waiting for Godot… We talk about it but nobody sees it! Futures International said “we don’t see any major decline in crop conditions”. It’s going to be a long winter…
The COT is a bit obsolete for the week ending on Boxing Day but it showed heavy selling on Soybeans (28,320 lots, increasing the funds’ short to 69,091 lots) versus buying on Wheat and Corn (respectively 7,842 lots, and 15,529 lots, reducing the respective short positions to 145,735 lots and 206,624 lots). However, the cumulated short was a big 421,450 lots. With the cold snap in the US this is a ballsy bet (excuse my French). Yesterday, funds bought 5,500 lots of Corn, 2,500 lots of Soybeans and 5,000 lots of Wheat to start the year, being the cut-off of the CFTC COT week, market will expect the same pattern and funds to be seller of Soybeans (6,500 lots over the week) and buyer of Corn and Wheat (respectively 1,000 lots and 6,500 lots).
US Export Inspections were pathetically low on wheat… Well it is seasonal but only 274.5kT is pretty weak: only 55% of the yearly target is completed, 54% it was last year but 58% on average. It will for sure be a close call at the end of the year. An interesting way to see it is that according to USDA WASDE, US wheat exports will be down -1.5MT year on year. But marketing year to date, it’s down already -1MT: a simple extrapolation would suggest exports will be down -1.7MT… And the second part of the season is not the strongest usually but with the unreported inspections, hope is still not a utopia especially if there is a shortage on the new crop: it can happen should there be winterkill and poor yields. Corn inspections were 683.9kT, making it 22% of the target marketing year to date, far behind last year (29%) and also disconnecting from the average (28%). It is -6.5MT behind last year (in 4 months only) while full year is expected to be -9.34MT. If exports are not getting higher quickly, this could become very nasty… Finally soybeans shipments were 1,139.4kT, this is the least ugly picture but still needs to be monitored: 47% of the target is done, far behind last year (56%) but still not dramatically delayed (49% on average). But with +2.08MT forecasted year on year, it is currently -4.7MT behind last year… So there’s a potential issue there also. Why did USDA recently increase US exports?!? First USDA WASDE of the year on the 12th of Jan, it should be a dull one but US exports could bring some surprises…
Yesterday, not super exciting EU manufacturing PMI’s (always a bit of magic, Spain, Italy, France, UK are missing expectations, down month on month, Germany just matching them – still down month on month, and EU is meeting expectations, stable month on month, some countries must have been on fire!) and with the expectations of slowly but surely ECB will taper, EURUSD is trading down this morning, the level of 1.20 is in sight, it would be a big battle to go significantly higher (currently trading around 1.2030). GBPUSD is a tad down, trading around 1.3575. Today main events will be the ISM Manufacturing PMI and the FOMC Minutes.