Markets

Daily Market Wire 8 August 2018

Lachstock Consulting, August 8, 2018

Lower for grains, higher for oilseeds.

  • CBOT wheat down 6.25c to 568.25c,
  • Kansas wheat down 6.5c to 579.5c,
  • Corn down 0.25c to 370.75c,
  • Soybeans up 12c to 889.25c,
  • Winnipeg canola up C$8.60 to $502.60,
  • Matif canola up €0.5 to €383.25
  • Dow Jones up 127.15 to 25629.33,
  • Crude oil up US$0.09 to $69.02 per barrel,
  • AUD up to 0.742c,
  • CAD up to 1.305c (AUDCAD 0.969),
  • EUR up to 1.1596c (AUDEUR 0.639).

Wheat

Wheat futures broke lower after being 8-10 cents higher for most of the night session. Fund selling was noted in the later part of the session, after futures failed to break last Thursday’s high. Matif wheat was up €1.5 to €216.25. Implied volatility in September Soft Red Winter wheat finished at 36.3 per cent.  All eyes are looking to Friday’s USDA World Agricultural Supply and Demand Estimates report. Market consensus is for a 4.5-million-tonne (M) decline in world wheat stocks, which seems way too low, given the 10-15Mt in production cuts we will face. The Saudi Government has imposed a ban on Canadian milling wheat and feed barley due to a recent political disturbance. This is another nail in the coffin of bullish US wheat demand. Saudi will only accept Aussie, US, German or Baltic milling wheats and, given declining production in Europe and Australia, this will have to fall to US wheat at some point, which should rally Kansas in front-end contracts.

Corn

Corn finished fractions lower, with funds unwinding corn/bean spreads. US weather conditions remain favourable for most of the corn belt,  with 25-50 millimetres of rain received in most of Iowa. The average US yield guess for Friday’s USDA report stands at 176.2 bushels per acre. The shrinking feedgrains balance sheet in Europe will have to lean on US reserves for support at some stage next year, but timing a long position in corn is hard, given that we have a 365Mt crop coming off in the US, not to mention the whipsaw action of trade policy. In any case, the balance sheet suggests favouring a long position over a short one.

Soybeans

Soybeans finished higher, led initially by declines in US crop conditions, and followed by repositioning. A private sale of 145,000t to unknown counterparties fuelled speculation that China will continue to buy US soybeans,  despite tariffs and trade tensions. This coincided with a German analyst’s publication that suggested China has no choice but to buy US beans in Q4, with or without tariffs. Fund flows saw money moving out of cereals and into oilseeds, with some position-squaring noted ahead of Friday’s report. Soymeal was up $2.70/t and soy oil was up 30 points.

Canola

Canola finished mixed across European and Canadian exchanges, with Winnipeg having to play catch-up with Matif after being off-line Monday for a public holiday. Yield concerns in Canada and a lower local currency encouraged some mild short covering. Canola remains a follower of soybeans, and a secondary victim to trade issues. The European crop is in continual decline, and could get to a point that enables Canadian imports. If this eventuates, it should set a floor in values.

Australia

Aussie markets were on fire yesterday, with Jan 19 ASX wheat trading at a new high of A$410/t, up $15 on the previous day. Barley followed suit, finishing $12.50/t higher at $370 in the Jan contract. Old-crop markets showed greater strength than new, with Victorian barley and wheat trading over $400/t track. The NSW crop is continuing to worsen, forcing consumers to cover at these record high prices. The eight-day forecast continues to show nothing promising, with a dry outlook in NSW, and patchy showers across Western and South Australia and Victoria. Flat price is getting to levels that have defied expectations, and it is difficult to stay bullish when we have moved this high.  Order flow will keep us at or above these levels until the grower sells, and this might not happen if it stays dry enough to prevent them harvest a meaningful crop.

Source: Lachstock Consulting

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