- Midday comments:
- CBOT wheat markets continued to piggy back strength in corn and soybeans although volumes dod not reflect any strong following. Perhaps the strange thing is that funds do not appear to be too concerned right now given the heavy selling being seen in crude oil which is causing liquidation of longs. Paris wheat made a good “recovery” bounce on the back of US grains. Any turndown or setback in corn or soybeans could well put the skids under wheat given its recent upsides. Last night’s planting report showed winter wheat at 68% complete vs. 56% last week and compared with the ten year average of 70%.
- Corn markets are likely to suffer from growers initially storing their corn whilst selling soybeans but in all likelihood storage will fill to bursting quite fast, and news of piles of corn on the ground will place the market under considerable pressure, particularly cash markets, which will in turn impact futures prices. Current market volatility in corn is high and the recent rain delays to harvest must be seen as a key driver of the latest upswing in prices. A resumption of better weather conditions and harvest will likely trigger a resumption of the longer established downtrend. Weekly crop conditions showed 74% of corn to be rated good/excellent, which is unchanged week on week and compares with the ten year average of 63%. Current crop condition is becoming less relevant right now, but keeps yield at the forefront of discussions, specifically in relation to the next USDA report in November.
- In soybeans we see a test of the $10 level in the Mar ’15 contract as a selling opportunity as the market faces a record US harvest and also a record S America crop which will be harvested in early 2015. Yesterday saw the second day of strong gains as funds withdrew taking profits which improved the short-term technical outlook. Volume, particularly in Nov ’14, was impressive with a life of contract set at over 200,000 contracts traded, mainly early in the session. Delayed harvesting, as with corn, and dry conditions in Brazil have been key drivers of the latest upswing in prices. Weekly condition reports showed soybeans at 73% good/excellent, unchanged week on week and compares with the ten year average of 57%. Harvest was quoted to be 40% done vs. 20% last week and the ten year average of 57%. The week on week change leans bearish for the market we believe.
- Evening update:
- Eventually CBOT corn futures gave way dropping almost 2.5% at the close with soybeans shedding half that amount. Wheat futures closed in the red but not significantly lower. Financial markets have seen sharp losses in equities and US$ whilst Chicago grains have seen huge volume trade in the day. We could well have seen some fund repositioning although the evidence, if there is any, will be slow in coming forward. Friday is the reporting day for Commitment of Traders reports, and the next release will only show data up to yesterday (Tuesday). US debt futures have posted sharp gains on a weakening global economic outlook, one trigger has been suggested to be the ebola outbreak and it should not be forgotten that crude oil has dropped below $80, the lowest level in the last four years.
- The ebola issue has the potential to be a major global destabiliser. CNN have been reporting on one US health worker diagnosed with the virus who flew the day before displaying symptoms. The fear is that the 132 passengers on the same flight may also now carry the infection which could spread and create a “hotspot” unless they are contained for the incubation period, suggested to be 21 days. The interview process for these passengers illustrates just how fast paced the virus can travel and and how difficult it can be to contain. Ebola can not be considered bullish for commodities or financial markets, perhaps with the exception of gold, as economic activity potentially slows and large crowds, public transport and large cities become less desirable places to be in outbreak situations.
- S American weather forecasts show the wet season commencing in earnest next week across northern Brazil with progressively wetter patterns emerging into November. Normal precipitation and temperatures are projected across Argentina and far southern Brazilian crop areas.
- The € gained over 120 points and Matif wheat closed a touch lower today. Spreads widened in surprisingly high volume trade, possibly on November option expiry. Russian corn output, extrapolated from current harvest data, suggests that the potential 14.5 million mt suggested three weeks ago may well be optimistic. Current estimates now look closer to 11.5 million mt, and possibly falling, and compares with the USDA’s 12 million mt forecast.