- It has been a mixed morning, with fund short covering ongoing in row crops while wheat is a bit weaker on the lack of response from world markets. Crosscurrents persist. As we have mentioned, there are more questions than answers regarding US/Chinese trade dialogue. EU equity markets closed weaker. Energy markets anxiously await news on OPEC production levels. And more attention is being paid to a further flattening of the US interest rate curve. US three-year rates now have a premium to 5-year rates. This is by no means the most widely followed spread, but a flattening bond curve has typically foreshadowed economic weakness in the US. This is only one of many signals of future economic performance, but it is likely that the Fed takes a hiatus with respect to raising benchmark rates moving forward.
- The US$ is slightly weaker at midday, while gold has risen to a new five-month high. We believe that a lasting high was scored in the US$ in mid-November. Rising debt should allow for a steady/slightly weaker trend into the first part of 2019. Key will be whether hard assets attract additional investment. Index funds have yet to commit to raw materials. Otherwise, we also mention Ukrainian corn basis is down sharply as the market there looks for export demand. The rise in Russian wheat fob prices has stalled at $230/mt, vs. a seasonal high of $233 in mid-October. The Buenos Aires Grain Exchange’s weekly report should show another modest improvement in Argentine corn crop ratings. European drought will ease further as low pressure aloft moves into Central Europe on the weekend. Above normal precipitation is forecast into mid-December.
- EIA’s weekly energy report will be delayed until Thursday, with export sales pushed to Friday. Uncertainty over an OPEC and Russian cut in crude production continues. OPEC members meet Thursday in Vienna.
- The midday S American GFS weather forecast is unchanged from the early morning solution and remains generally favourable. Excessive rain in Brazil will be forced in the far northern fringe of the country’s ag belt. Confidence is rising with respect to better rain changes in Argentina. This morning both the EU and GFS models included this pattern shift in their respective seven-day forecasts. A much wetter trend looks to develop in Argentina no later than next Mon/Tues. Excessive heat in S America remains absent.
- US-China trade and energy markets both face elevated uncertainty in the weeks and months ahead. This continues to muddy longer term outlooks.
- The UK Government’s parliamentary vote losses today do not bode well for next week’s Brexit vote. Our concern over the UK exchange rate post-vote is growing and we would certainly be looking to take some protection ahead of the vote to protect against what looks certain to be volatility.