The May USDA WASDE report is like Christmas: new crop data! Woo hoo! But fair to say that the market reaction was more like not believing to Santa Claus as it was welcomed with scepticism. Indeed, Soybeans (N8) settled up +5.50 cents, Corn -0.75 cent, Wheat -4.00 cents in Chicago, -4.50 cents in Kansas and -2.25 cents in Minneapolis. On the other side of the pond, MATIF was down -€0.50 and London Feed +£0.95. Nothing exciting. In Chicago, funds sold 11,000 Corn, 4,500 Wheat and bought 6,000 Soybeans.

So what happened?

 

Wheat old crop: world ending stocks are cut by -0.76MT, this is driven by a lower world production (-1.37MT to 758.38MT) as Middle East production was adjusted by -1.00MT. Nothing much more. However, US exports were cut! By -0.40MT to 24.77MT, this is partially offset by higher consumption (+0.25MT).

Wheat new crop: obviously beginning stocks were starting with a small disadvantage, but the main data traders were eager to see was… Production! World production is seen down -10.62MT year on year, -1.40%! The big hit is coming from FSU with Russia down -12.99MT to 72MT, Kazakhstan -0.80MT to 14MT and Ukraine -0.48MT to 26.5MT. The Russian data was welcomed with scepticism and disbelief. Drought concerns are widely seen as overplayed and it seems like USDA is struggling to assess early the size of the crop and is consistently conservative if not conveniently pessimistic. It is widely expected to raise during the coming months. US production is seen up +4.64% (+2.20MT) to 49.57MT, Argentinian production up +1.50MT (to 19.5MT), Australia and Canada both up +2.50MT (to respectively 24MT and 32.50MT) while EU is seen down -1.18MT to  150.40MT. World use is expected to grow year on year by +10.08MT, driven by feed usage (+9.84MT). World ending stocks are therefore expected to be down -6.13MT year on year to 264.33MT. Everyone is scared, saying that stocks excluding China are at a 6 year low… Sure… But still, world stocks are 35.35% of the world production and 35.06% of the use. There is still plenty of wheat and considering the conservatism on Russia, this could only improve.

Corn old Crop: world ending stocks are cut by -2.93MT as Brazil production took a hit of -5MT to 87MT, exports were subsequently cut by -3MT to 30MT.

Corn new crop: obviously, here again, beginning stocks were starting with disadvantage. But world production is pegged at 1,056.07MT, up +19.41MT year on year, +1.87%. This is not thanks to the US as production is seen down -3.86% year on year, to 353.63MT (-14.33MT). The yield is pegged at 174 bushels per acre, versus 176.6 bushels per acre for the old crop. To refresh our memory, the May 2017 report pegged the yield of the new crop (at the time) at 170.7 bushels per acre. Some hopes of some conservatism here are permitted then! US use is seen down -1.27MT year on year (to 317.26MT) as well as exports are seen down -3.18MT to 53.34MT. Argentinian and Brazilian crops are seen recovering by respectively +8MT and +9MT to respectively 41MT and 96MT. EU production is seed down by -1.1MT to 61MT, Canada up +1.2MT to 15.3MT, China up +9.11MT to 225MT and FSU, contrary to wheat, can be seen as optimistic, as it is expected +11.46MT year on year to 53.5MT with Ukraine itself being up +5.88MT to 30MT. Therefore, world ending stocks are expected down by -35.7MT to 159.15MT, a cut of -18% taking the production ratio down to 15.07% and the use ratio down to 14.58%. This is getting tight but it seems that market had integrated those facts already.

Soybeans old Crop: The only old crop without a bad news as production is adjusted up by +1.89MT: -1MT in Argentina but +1MT in Brazil. World ending stocks are up by +1.36MT.

Soybeans new Crop: The small help on beginning stocks did not change the main trend. World ending stocks are getting lower across the boards. Soybeans stocks are seen down -5.46MT year on year, despite a production seen up by +5.30% (+17.84MT to 354.54MT). Well this is mainly the Argentinian crop recovering to 56MT (+17MT) to be fair. US crop is seen down -3.04MT (to 116.48MT) but exports are seen up +6.12MT to 62.32MT. Initial yield is 48 bushels per acre, versus 49.1 bushels per acre for the old crop and versus 48 bushels per acre in the May 2017 WASDE. Crush is seen rebounding by +13.95MT, driven by Argentina (+3.27MT) and China (+7MT). Stock to production ratio is still comfortable (24.45%) as well as stock to use ratio (24.24%).

So a first exercise that raise more question than answers but it is always a very difficult exercise. June and July WASDE reports will see some adjustments for sure.

 

Today market is still digesting the report and Soybeans are erasing the gains with -8.00 cents, Corn is down -1.25 cent and Wheat -4.75 cents in Chicago, -5 cents in Kansas and -2.50 cents in Minneapolis. MATIF is a couple of ticks down while London Feed is flat.

 

Main fundamental news is that BoE came to fast to the conclusion that a long regular trend of rate hiking was to come. 2 members out of 9 wanted to raise the rates that being said, but with UK Manufacturing Production down -0.1% month on month, with the House Price Index down -3.1% month on month, with the preliminary quarterly GDP only up +0.1% and the latest CPI at +2.5%, this is far from being compliant with their plan. GBPUSD is trading around 1.3580. Yesterday US CPI was up a shy +0.2% and Core CPI was +0.1%. EURUSD is trading around 1.1950.

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