Lower for grains and oilseeds.
Wheat lost ground ahead of the USDA World Agricultural Supply and Demand Estimates (WASDE) report due out overnight, and traded with low volumes and within a mild range, suggesting a lack of conviction until the WASDE provides some clarity. Russian officials increased their wheat crop estimate by 4.1 million tonnes (Mt). This appears curious, given the amount of supply-friendly actions they are taking in the face of a domestic market that continues to rise. Implied volatility in Dec Soft Red Winter wheat finished at 21pc. Matif wheat was down €0.75/t to €202.75/t, Black Sea wheat fell US$0.5/t to $248.5/t, and the ruble fell 0.96pc. Crop quality in Canada continues to be a concern as harvest pace faces ongoing delays. Argentina’s importance has increased this year, given the world’s heavy reliance on its exportable surplus. The USDA currently has 14.2Mt penciled in for Argentina, but dry weather has local forecasters revising these figures down as production declines. Aside from the US and Russia, this year we are experiencing issues in all other major wheat suppliers. As long as consumers don’t drastically alter their demand profile, the balance sheet suggests that we’ll see ongoing flat price support in global wheat over the next 3-6 months.
The corn market lost ground in a US3.25c/bu ranging session, and volumes were lower with traders fearful of entering new positions until any potential WASDE yield surprises are out of the way. The spec covered a lot of shorts last week and might look to reload with if the report enables them to. Downside in corn is limited somewhat by an excellent global demand profile that faces limited competition.
Soybeans faced decent losses, with traders fearful of yield increases in the WASDE report. Macro influences contributed to overall weakness, with the fall in crude oil having an impact on oilseed markets. Soybean meal was down $2.10/t to $315.70/t, and soy oil dropped 37 points to 27.8c/lb. In another blow to demand, Chinese regulators are exploring ways to reduce protein requirements for the feed sector, which could reduce bean demand by up to 10Mt per year.
Canola suffered losses in both contracts, thanks to the overall weakness in the vegoils complex. Matif was hit the hardest, as sellers are reluctant in Canada due to a nervous speculative short position, and uncertainty on yield and quality thanks to in-crop moisture.
Aussie markets were stronger in the east and weaker in the west. After pricing under Western Australian values yesterday, holders of east-coast short positions all saw value at the same time, which prompted prices to rally approximately A$10/t. With supplies scheduled to be at record lows, the market needs to be efficient to recognise under-priced grain quickly. This is what we saw yesterday. The weather forecast has not deviated from yesterday, with 15-25 millimetres of rain still forecast for most east-coast cropping areas. Sorghum prices sustained their large discount to wheat. In WA, the debate for prices is whether grower selling overshadows export demand to encourage a short-term price reduction. On one hand, this seems like it would be short-lived at best, given the solid demand profile and potential for Australia to displace some Black Sea demand from November forwards, when Vietnam imposes import restrictions on Russian grain. On the other hand, we are have set a new benchmark on price highs, so growers might take the money and run.
Source: Lachstock Consulting