Softer markets ahead of the WASDE report out tonight, with some general long position covering.
The wheat market will focus on US demand figures as well as what the USDA does with Russian and Australian numbers. USDA Australian production is well above the current local forecasts (18.5 vs. 16.5), so it will be interesting to see if they start to drag that number down in this report, or wait for harvest and further confirmation on supply. Russian export figures are always going to be a talking point and the fact of the matter is we have seen strong pace and no further intervention from the Kremlin, so we would be surprised to see the USDA backflip and cut Russian exports at this point. Early crop condition reports on the US winter wheat crop are a something to watch. The crop condition dropped 2 per cent in the good-to-excellent rating this week and is below last year. Whilst winter crop conditions don’t have a great correlation with yield, the market and farmer will be watching it and it will impact order flow from the sell side.
The corn market is watching closely for any yield reductions in the USDA report tonight, with many in the trade suggesting wet weather in October is enough to see yields south of 180bu/ac. However, the average trade guess is bang on 180, which is down marginally from 180.7 in the last report. Either side of 180 looks to be the flex point on market responding in either direction. Little bit of gossip around China changing their production numbers higher, which is in the face of others looking at smaller crops. With talk also ongoing about the USDA doing some historical “repairs” to their China corn S&D we will have to keep this in the back of our minds when looking at the otherwise long-term trend of lower global corn stocks into 2019.
Oilseeds were similarly focused on the pending USDA report and couldn’t glean a lot out of the mid-term elections. No doubt the fall out from the change in power in the lower house with a stronger Republican senate and what that means for the China-US trade discussions will come to a head in time. However with the urgency of the mid-terms behind us, it is possible things stagnate once again for a period. Canola found some technical buying and we also saw optimism in the veg oil market with many seeing a great likelihood of favourable biodiesel laws being passed.
The Australian market remained quiet yesterday, also wanting a decent lead from offshore. Rain around the eastern states has allowed some light trade at lower levels from where it sat on Monday. Expect more of the same for the remainder of the week. As harvest ramps up next week we will see a transition from the calm to the storm as trading activity on both sides will no doubt become frenetic.
Source: Lachstock Consulting