- Continued currency volatility amid Brexit uncertainty has been a key feature; a voting on a raft of amendments to the Brexit deal occurred last night, currency was again volatile. During voting last night the pound lost 1% of its value relative to the €uro. However, by midday, some of the loss had been recovered as currency markets continue to view the probability of a hard Brexit as unlikely. £Stg’s recovery in value today has led UK wheat futures (May-19) £172.00/mt at midday, up £0.10/mt on yesterday’s close, as the recovery in sterling has been offsetting the gains seen in Paris milling wheat futures.
- Markets reacted differently to the results of the Egyptian tender from GASC yesterday. Paris milling wheat futures (May 2019) reacted bullishly to the news that France and Romania secured the shipment of 360,000 mt of wheat to Egypt. Paris milling wheat futures (May 2019) gained €0.50m/t yesterday to close at €206.75/mt. Conversely, although the US had the lowest offered price basis FOB, freight rates proved too high to be competitive against European offers. As a result the value of Chicago wheat futures (May 2019) fell, dropping $2.21/t on the day to $190.86/t. The drop in Chicago wheat futures likely capped gains made by the increased demand for EU wheat. The purchase of French wheat by GASC was the first since July 2017 and indicates that European wheat is once again competitive on the global stage. The increased EU demand was a positive indication for UK feed wheat, with May 2019 futures rising marginally yesterday. The extent to which UK futures gained on the back of positive EU demand was capped by movements in currency .
- It has been a mostly firm session in reduced volume. Neither the bulls nor bears have much to sink their teeth into, particularly with tomorrow’s export sales report only featuring demand through the week ending Dec 20. Large grain sales are expected, but whether USDA forecasts need changing won’t be known until mid-February. And whether USDA will have access to up-to-date export data prior to the release of the Feb WASDE report is unknown.
- US-Chinese negotiations will be ongoing into late week. So far, no real information or sentiment is available.
- This week’s EIA report is mixed but generally bearish. Ethanol production through last Friday totalled 298 million gallons, down 6 million from the prior week. US ethanol production was below the previous year for a third consecutive week. Ethanol’s corn demand draw can be changed along with production margins over the next 6-7 months, but work suggests USDA will cut corn-ethanol use 50 million bu in next week’s report. And US ethanol stocks last week increased 20 million gallons to a 15-week high. Ethanol supplies are ample. Crude stocks, less reserves, were also up slightly on the week, though energy markets at midday are stronger across the board.
- Black Sea sources now peg wheat replacement costs in Russia at roughly $242/mt near export terminals. This compares to spot fob offers this morning of $254/mt. Even at four-year high fob prices, Russian exporter margins remain thin at best not to mention livestock/milling margins. Interior Black Sea grain prices are fully expected to rally further in the next 3-4 weeks. Missing Egypt’s tender Tuesday was disappointing for the bulls, but there’s still a sizeable amount of world trade yet to be executed.
- The Central US forecast is consistent with prior runs in allowing extreme cold to return to the N Plains and Upper Midwest mid/late next week. Following a brief warm-up this weekend, low temperatures return to sub-zero levels across the Dakotas, MN, WI and IA next Tues-Fri. Along with additional snow early next week, logistical snarls will remain in the next 10 days. Winterkill remains an issue in KS and NE. A lack of snow cover in Southern Russia is also being monitored.
- The midday GFS S American weather forecast is little changed from the morning run, and so the GFS and EU models look to end the day at odds on precipitation totals and coverage in Central Brazil. Draws in soil moisture continue into the weekend. Much better rain falls across key areas of Mato Grosso, Goias and Minas Gerais (45-50% of soy production) in the 6-15 day period. At issue will be whether this pattern expands into Mato Grosso do Sul and Parana. We view the forecast as mixed. A pattern shift does lie ahead, but not all areas will benefit. Yield stabilisation is the primary theme.
- Soybeans appear overvalued without a deal with China in the near term. Wheat is undervalued as substantial demand will be increasingly funnelled to the US. Corn is caught in between, and overall choppy trade persist amid political uncertainty, which has acted as a weight since summer.