Markets

Daily Market Wire 14 May 2020

Lachstock Consulting, May 14, 2020

Wheat markets settled 3pc lower.

  • Chicago wheat July contract down US12.75¢/bu to 501.75¢;
  • Kansas wheat July contract down 15c to 454.25¢;
  • Minneapolis wheat July contract down 12.75c to 508.25¢;
  • MATIF wheat September contract down €2.50 to €184/t;
  • Corn July contract down 4c/bu to 318.25¢;
  • Soybeans July contract down 12.5¢/bu to 839.5¢;
  • Winnipeg canola July contract down $C0.60 to $471.50/t;
  • MATIF rapeseed August contract down €3.50 to €366.50/t;
  • Brent crude July contract down US$0.79 per barrel to $29.19
  • Dow Jones index down 517 points to 23248;
  • AUD weaker at $0.6438;
  • CAD weaker at $1.4092;
  • EUR weaker at $1.0814.

Overview

Markets were heavy post the USDA review yesterday.

Wheat led the charge with ideas the USDA had understated production and overstated demand.

China/US tensions increased again with Trump administration directing pension funds not to invest in Chinese weapon companies.

Australian barley found its feet.

Markets

In the wheat pits Chicago settled down -12.75 usc/bu closing at 501.75usc/bu, Kansas was -15 usc/bu lower to settle at 454.25usc/bu, while Minni softened -12.75 usc/bu to go out at 508.25usc/bu. Corn fell -4 usc/bu to go out at 318.25usc/bu while Beans were down -12.5 usc/bu to settle at 839.5usc/bu WCE Canola softened -0.6 CAD/mt closing at 471.5CAD/mt with Matif Canola finishing lower by -3.5 Eur/mt. In outside markets the Dow Jones fell -516.81 points, Crude was down -0.65 bbl, the Aussie, the CAD and the EUR all fell.

Markets spent 24 hours deciding that the USDA report was actually a little more bearish than first thought. I think it is a fair comment to suggest the USDA is conservative on supply increases, but even more conservative on demand adjustments. This was certainly a focus as traders sifted through the potential impacts to global demand due to COVID. Wheat feeding demand erosion is relatively easy to understand given the wheat/corn spread but it is more difficult to estimate what this all means for flour demand. Certainly, one of the must haves of the doomsday preppers was flour. This demand has seemingly abated now and supermarkets are restocked with supply. It remains open to question though how much bread demand can be linked to food services? Do people consume less wheat-based product when locked in their house?

 

Technically the wheat market looks horrible, and with harvest just around the corner fair value calculations all seem to be pointing lower. There was some vaguely positive news; China issued more import quotas that will apparently go to US corn, there are signs of life in US gasoline demand and subsequent kick in ethanol production. But these factors seem irrelevant in the context of the wider bearish environment. This bias is certainly not helped with growing Chinese political tension, including politics around Australia’s beef processor lockout and the Trump administration’s recommendation to US pension funds to not invest in Chinese companies with interests in weapon production.

 

Australian old crop markets seem to be finding some stability on the wheat front at least. The barley bid/offer is still very wide with growers currently in standoff mode and not willing to be forced sellers. Trade liquidity seemingly is the only moving part at the moment. Wheat-barley spreads are ranging from towards $100/t in WA and along the east coast they are in ranges of $60-80/t depending on track, grower bids and delivered markets all representing different spread ranges. Growers planting crops in NSW are on the home stretch.  The late switch out of barley has been a bit heavier than anticipated. Estimated planting pace in northern NSW is 75pc, central NSW 65pc and southern NSW, 60pc.

 

The 8-day BOM forecast is now starting to align with some of the longer range weather models. This provides increase confidence that the wider cropping belt can get some level of moisture within the forecast period.

 

Slug

 

 

Australia

Back locally, markets were choppy again yesterday across the board. Geelong/Melbourne delivered markets seemed to have narrowed in on new crop for January plus, but others still remain wide or offer side only. Grower interaction has been on the low side with planting still in full swing. New crop barley grower bids in the WA were back up $10-15 and still hard to pin a true value. Smalls traded in Kwinana yesterday on old crop BFED at $270 FIS off $55/mt from the highs of the market we saw a month or so ago. Along the east coast old crop wheat markets firmed a fraction, through some of the NSW domestic homes small liquidity going through with some buyers filling some holes here and there but the market still largely offer side. Eastern Australia ASX wheat and barley contracts settled yesterday for January, wheat $306.50/mt and $226/mt for barley.

Crop progress is in good shape, rain maps showing some expected precipitation for next week but nothing getting growers too excited about yet. We need to see some more confidence in the models to all line up.

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