International

The Japan carry trade is more invested than the market was giving it credit for. Carry trade exploits both low Japanese interest rates and favourable foreign exchange conversion to borrow money from Japan and deploy it in something like US equities. When the BOJ increased rates forex markets found a bid so it was a double whammy for those involved in the trade. As with the majority of stop out events, when the BOJ moved against the trade and people looked to get out there was no one on the other side.

Global sensitivity to this-time-for-sure doomsday-type sentiment is extremely high. Wires were quickly filled with “unavoidable recession” and “emergency fed cut likely” driving the get-me-out flow.  

Agricultural markets, despite some sizeable price moves, largely watched the fun and games from the sidelines. In a textbook recession, everything suffers, ags less so but they still suffer. In a global meltdown, ags find a bid as countries try and deal with financial-market-driven social unrest by ensuring they have enough food in the cupboard. I hate analogues (more on that later) but in 2008 it was the stock building by emerging markets that drove wheat in particular to record highs.  

I don’t think the world has dealt with a set of fundamentals like we have now, including the  post-COVID massive liquidity injection and subsequent inflation pressure it is impossible to say, “oh, in 1987 we got obliterated”. Interestingly a CBA wire this morning suggested the extra liquidity that was injected during COVID essentially would run out by the end of 2024. I feel for the RBA in this environment. It has been vocal this week making sure the market understands that it would increase rates if it needed to do so. It is a hard thing to manage when Australia has record immigration and government policies that include rate cuts and power bill relief.  

Stratégie Grain cut EU wheat production estimate, driven lower mainly by the lowest French crop since 1986 at 25.6Mt – EU production of 116.5Mt would be 10.7Mt lower than last year. USDA WASDE will publish on Monday 12 August. It currently has EU wheat pegged at 130Mt.  

Argentina is on strike again. The oilseed industry union strike is in its third day, affecting shipments of soyoil and meal.

Australia

WA markets saw canola make up some good ground yesterday to A$780/t FIS for CAN, and GM remains heavily discounted at less $75/t. New crop wheat bids were steady in the $375/t to $380/t FIS range depending on port zone, and feed barley circa $325/t.  

Eastern markets also saw a good improvement with canola bids gaining $25/t to $705/t track, we did see a slight pickup in nearby cereal demand in the southern markets yesterday.