Higher for grains and oilseeds.
Wheat punched higher supported initially by rumours of a Russian export ban in the Aussie day session. Implied volatility in Sep Soft Red Winter finished at 27.25pc. Some traders are beyond questioning if an export ban will occur, but when. The Russian government announced that it would not impose any export restrictions for the remainder of 2018, but that doesn’t really say much, as they could still announce a ban on 2019 wheat at any stage. The speculation on a ban comes from their crops low quality this year and the unlikelihood of them being able to export 35 million tonnes (Mt) of milling wheat while maintaining internal price stability. Expensive bread makes for angry Russians and isn’t good politically. By the time an export ban wasn’t announced wheat was caught up as a follower of soybeans and corn, before finding its footing thanks to very strong weekly export sales. Just what US wheat needs to do, export. Sales came in at 803,000t for the week vs. market ideas of 350,000t, with an additional 200,000t flash sale of Hard Red Winter wheat also announced to Iraq. Matif wheat was up €3.25/t to €208/t and Russian prices were stable. Jordan announced a tender for 120,000t of milling wheat that will open on August 29. Global weather forecasts are hot and dry for the EU, Black Sea, Australia and Canada. Hard to see considerable downside here.
Corn was a follower today with gains muted somewhat by the anticipation of harvest pressure that is just around the corner. Export sales were strong coming in at 1.379Mt vs market ideas of 1.1Mt, putting total sales for new crop 3.1Mt ahead of this time last year. China sold 1.53Mt of reserve stock owned by the government in a recent tender, with only 39pc of the offered volume being purchased. Next week we will get a closer look at corn yields as the Profarmer crop tour kicks off, the market is pricing in a lower yield forecast post tour.
Soybeans rallied after China announced that they were sending a delegation to the US to attempt trade re-negotiations later in the month. This does not mean a solution will be reached, but in the event that one is, then this market should have unbridled upside potential. Export sales came in 704,600t, slightly below expectations. Soymeal was up US$5.10/t and soy oil was up 27 points.
Canola shot higher following strength in vegoils, with Winnipeg gathering more speed thanks to ongoing dryness in Canada as well as potential for higher domestic crush demand and transhipment potential into the US if a trade negotiation is reached.
Aussie markets were quiet but firmer yesterday as production declines continue to price in on the east coast thanks to a weather forecast that continues to deliver nothing. NSW is in constant decline and Victoria is not looking great. Not only do we have tight production coming in grains, but we now run the risk of losing further production thanks to high hay prices and insatiable demand coming out of NSW. This balance sheet would not favour 1Mt of grain losses in SA and Vic if farmers make what could be a wise decision, given the current risk reward on hay. In this event we have a greater reliance on WA prices which will see us outprice the South East Asian consumer for now, but if we get government intervention in Russia then we could see a bidding war.
Source: Lachstock Consulting