Markets

Daily Market Wire 31 July 2018

Lachstock Consulting, July 31, 2018

Higher for grains and oilseeds.

  • CBOT wheat up 16c to 546.5c,
  • Kansas wheat up 15.25c to 547.75c,
  • Corn up 5.25c to 367.25c,
  • Soybeans up 4.5c to 875c,
  • Winnipeg canola up C$0.19 to $493.80,
  • Matif canola up €0.25 to €368.75,
  • Dow Jones down 121.11 to 25329.95,
  • Crude oil up US$1.29 to $69.98 per barrel,
  • AUD up to 0.740c,
  • CAD down to 1.302c (AUDCAD 0.964),
  • EUR up to 1.170c (AUDEUR 0.632).

Wheat

Wheat was stronger out of the blocks, with production declines in Europe, the Black Sea and Australia continuing to dominate headlines. Implied volatility in Sep Soft Red Winter (SRW) wheat finished at 36.5 per cent. Hard Red Winter (HRW) wheat made new highs, while SRW and spring wheat couldn’t break through last week’s highs. Matif wheat was up €4.25 to €202.5, reaching new highs not seen since 2015; a close higher than €2.25 from here would break that high, and see it push towards the €217 achieved in 2014. Catalysts in Europe overnight came from Poland, which reduced its crop forecast by 14pc, while German farmers are seeking drought assistance. US wheat inspections were low at 379,000 tonnes, down 11pc on last week, and 40pc on last year. The global wheat market is uncovering some demand, with Algeria and Jordan both tendering, as well as speculation on a nearby Saudi tender. HRW is getting to levels that should buy demand, and the futures market should respond accordingly. Results of Iraq’s tender over the weekend are yet not be announced, and revealed US wheat as the cheapest offer. Spring wheat conditions came in at 78pc good to excellent, down 1pc for the week.

Corn

Corn finished higher, with good US demand prospects combining with a declining EU/Black Sea balance sheet to encourage some mild short covering. Inspections came in at a whopping 1.6 million tonnes (Mt), up 24pc on the previous week, and 67pc for the same time last year. US crop conditions for the week came in unchanged at 72pc good to excellent. The bearish news for corn seem to be exhausted for now, so it’s a question of timing as to when it will go for a run. A new monthly high is building technical momentum, which may worry shorts and prompt an increase in fund buying.

Soybeans

Beans finished with mild gains. US conditions were unchanged for the week at 70pc good to excellent. Weekly export inspections showed that 740,000t was shifted last week, which was 50pc higher than the same time last year, and is tracking 3.6pc below last year which, given China’s absence, is surprising. This reaffirms the view that US beans will find demand regardless, and may create uncertainty for existing fund shorts. Soymeal was up $1.20 per tonne, and soy oil was down 25 points.

Canola

Canola futures were fractions higher in both Europe and Canada. Weakness in vegoil markets was overcome by production declines in Europe, and strength in beans and cereals there. The European crop is expected to be 16pc lower than last year, which could open an importing window for Canadian/Australian seed, and should tighten the global balance sheet, despite talk of a larger Canadian crop. New-crop markets in Australia remain very strong and lacking any significant offers, thanks to forecast production declines in eastern states. Australia’s old-crop canola on the east coast is lacking a bid, which is surprising, given that it’s trading beyond full carry in some instances.

Australia

Strength continued yesterday for Aussie markets in thin trade, with new-crop wheat trading an $11/t range. Barley followed similar price action in new-crop, while old-crop values moved sharply higher, thanks to the New South Wales farmer freight subsidy announcement. The NSW government has now made it official: NSW is in drought mode, and the longer the forecast delivers nothing, the more airtime production bears will have to raise the sub 2.5Mt flag for NSW wheat production. There is a lot of weather to overcome before this eventuates, but the government’s announcement makes it a front-of-mind problem that should prompt further speculation. The eight-day forecast is calling for 10-15 millimetres in south-central NSW, but it potentially misses the cropping regions, and t is unlikely to fall anyway if the forecasters’ recent track record is anything to go by. South Australia, Victoria and western Western Australia could get 15-25mm with reasonable coverage, which could encourage some grower selling. In spite of this, we expect ongoing price support until something turns NSW around.

Source: Lachstock Consulting

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