Overnight markets:

Lower for grains and mixed for oilseeds.

• CBOT wheat down -11.75c to 514.8c,
  
• Kansas wheat down -8.75c to 442.75c,
  
• Corn down -10.5c to 377.25c,
  
• Soybeans down -10.25c to 931.25c,
• Winnipeg canola up +0.2$C to 514.8$C,
  
• Matif canola unchanged 359€,
  
• The Dow Jones down -36.3 to 21,235.67,
  
• Crude Oil down -0.01c to $48.3c,
  
• AUD up to 0.754c,
  
• CAD up to 1.331c (AUDCAD 1.004),
  
• EUR up to 1.120c (AUDEUR 0.673).
  

Wheat

USDA was out on Friday and was basically a non-event from an order-flow perspective, though a few surprises were noted in wheat. Global wheat stocks increased by 3mmt to 261.3 due to production increases in Russia and Argentina, while in the US, Hard Red Winter (HRW) forecasts came in above market expectations at 743 vs ideas of 734. The market did not really pay that much attention, with more focus on the hot conditions in the northern plains and parts of the corn belt. The Commitment of Traders (COT) report out after the close on Friday revealed some notable changes week on week, with Soft Red Winter (SRW) wheat at -139,700 vs -146,300; HRW at -1,800 vs. -4,100; Minneapolis Grain Exchange long 6,700 vs 2,900; corn at -171,400 vs -224,600 and beans -124,400 vs -113,400.

This week was always going to be about the weather and that is what we traded.

Wheat followed the weather forecast; even spring wheat could not force a positive close. Implied volatility in the Chicago July contract dropped to 23.5 per cent. After ignoring the USDA report on Friday, it’s interesting how quickly a less bullish forecast can encourage a refined focus on all things bearish. The market is still thinking that the USDA has not addressed the acreage abandonment issue in HRW, so that story has room to play out. In global news the Saudi tender for optional-origin wheat was concluded at prices ranging from $213-$222 for 805,000t, while Egypt’s GASC bought 360,000t Russian/Baltic wheat. Dryness concerns are continuing for Europe and the Ukraine, while Australia has nothing on the forecast. The weather story in the US is not over; look for whippy trade this week as the forecast dictates price action.

Corn

Corn suffered the same fate as beans, the weather forecast. On top of this, the COT position was significantly reduced in last week’s record volume trade, which has taken the bid side pressure off things. The market will continue to face weather volatility until we can get a clearer picture with regards to pollination. On a global level, concerns are mounting in China for its crop, where drought and hail have caused crop damage in large production areas of North East China; this has prompting its ag ministry to cut its crop estimate by 700,000t, down 3.6pc from last year. Dalian corn futures are responding accordingly, with speculators loading up, and pushing prices higher.

Soybeans

Soybeans closed softer, led by weekend rainfall across the Dakotas and Minnesota, and a forecast for further rainfall later in the week. This eased pressure, allowing some risk premium to leak out. The COT report revealed a significant increase in the short position, which should encourage a bid on breaks with the production volatility we have to get through.

Canola

Canola traded mixed in a quiet session; the July contract managed to stay positive, but the Nov contract fell $2.70. The stronger Canadian dollar added pressure, as well as improved forecasts in dry parts of Manitoba and Saskatchewan.

Australia

There is nothing new on Aussie weather, and the 8-day forecast looks dry, feeding ongoing concerns for new-season production. Cash pricing should remain strong in wheat in relative terms, given the slowing of offer-side liquidity, and no immediate reprieve for new-crop concerns.

Source: Lachstock Consulting