Markets

Daily market wire 3 October 2017

Lachstock Consulting, October 3, 2017

Overnight markets:

Lower for grains and oilseeds.

  • CBOT Wheat was down -3.5c to 444.75c,
  • Kansas wheat down -3.5c to 439.25c,
  • corn down -3.75c to 351.5c,
  • Soybean down -10.75c to 967.75c,
  • Winnipeg Canola down -0.699$C to 498.2$C,
  • Matif canola down -2€ to 366.75€.
  • The Dow Jones up 152.50 to 22557.6,
  • Crude Oil down -1.13c to US$50.54,
  • AUD up to 0.782c,
  • CAD up to 1.251c, (AUDCAD 0.979)
  • EUR down to 1.173c (AUDEUR 0.666).

Wheat

Wheat was softer in follow through selling after the negative USDA report last week. Spring wheat led things lower, down US12.25 cents/bushel. Implied volatility in December Soft Red Winter wheat futures went out at 18.25 per cent. Russian prices continue to stabilise as the reality of lower than expected export figures is factored in. Matif futures were higher, with a weaker Euro contributing to its support. US wheat is in an interesting situation; Hard Red Winter is supposed to be buying export demand this year and providing a stable benchmark for global exports, however the VSR¹ structure is discouraging domestic or export sales, which is leading to increases in basis premiums. There is reasonable demand, with Tunisia, Iraq and Egypt all tendering. The changes in the Aussie forecast, should factor in to futures risk premiums at some point.

Barley

Barley prices in the Saudi Government tender were higher than their last, which the market was expecting given the sharp increase in Black Sea free-on-board prices. 540,000t was purchased for LH Nov, FH Dec delivery, with prices ranging from US$212-220/t cost-and-freight. The global barley situation is so tight this year that global prices should converge as supplies decline and demand focuses on q1 next year.

Soybeans

A stronger USD combined with lower than expected weekly sales to add pressure to soybeans. The whole bean complex was weaker with meal down $2/t and bean oil down 34 points. A fresh private sale of 132,000t was announced to China early in the day. Total weekly sales at 894,200t were slightly below the markets expectations, though slightly ahead of last years figures. US bean harvest is 22pc complete, leaving potential for yield surprises as progress continues.

Corn

Corn had a 597,000t sale announced to Mexico, though this could not encourage any gains given the weakness in other markets prompted by the stronger USD. Weekly export inspections were in line with expectations, though almost 50pc behind the same period last year, though this could be partially attributed to a slower harvest. The bias in corn feels stronger at the moment, with a lot of focus on reductions in South American acreage and yield, though corn needs ongoing demand to reduce the heavy stock position if its going to encourage any significant buying.

Australia

Rainfall in QLD appears to have missed the Darling Downs, though it did get Central QLD and South West QLD with approximately 25-50 mm. This is good rainfall to encourage sorghum planting in these areas, but more is required, particularly in South West QLD. The 8-day forecast is showing less promise for Southern NSW and Victoria with falls not looking to exceed 10mm. With temperature increasing, this is not very positive for production potential in these parts. Cash markets were quiet yesterday with public holidays in QLD and NSW, but we expect them to stabilise or strengthen given how the weather forecast has transpired.

Source: Lachstock Consulting

 

¹ Editor note, the VSR, variable storage rate mechanism was introduced by Chicago Mercantile Exchange Inc (CME Group) in 2010 to address poor cash-futures convergence. Read about VSR here and understanding wheat futures convergence here

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