Another Interesting Week Lies Ahead
06/08/11 -- News out late Friday, after the markets closed, that S&P's have downgraded America's credit rating to AA+ with a negative outlook sets us up for an interesting week ahead.
The fallout from last week hasn't really hit the grains too hard just yet with corn closing higher on the week as a whole, wheat little changed and soybeans a bit lower, but nothing too dramatic.
The FTSE100 though has just had it's worst week since the height of the previous financial crisis, falling almost 10% as GBP149 billion was wiped off it's value in a week. Stock markets around the world have fallen a combined GBP1.5 trillion since the month began, according to today's Daily Telegraph.
NYMEX crude fell 9.2% last week with Brent tumbling 8%, yet CBOT corn bucked the trend with a 4% increase.
A brief bit of respite for crude and equities was gained on Friday from news that US unemployment fell slightly from 9.2% to 9.1%, although that was largely because 193,000 people gave up looking for work, not because a significant number found new jobs. Those guys are hardly going to be big consumers of anything that will help drive the US economy forward are they?
Italy meanwhile are running around with their hand out only to discover that the rest of Europe has the "on vacation" signs out whilst Rome burns. Borrowing costs there rose above those of Spain for the first time since this all kicked off on Friday.
The big question this week is can the grains continue to divorce themselves from what is happening in outside markets around the world? Personally I suspect not.
Chicago Close
05/08/11 -- Soybeans: Aug 11 Soybeans closed at USD13.31 1/2, down 7 3/4 cents; Nov 11 Soybeans closed at USD13.35 1/4, down 3/4 cent; Aug 11 Soybean Meal closed at USD345.20, down USD2.40; Aug 11 Soybean Oil closed at 54.90, down 28 points. On the week overall beans were 22 /34 cents lower, with meal falling USD6.40 and oil down 75 points. Yesterday's global commodity sell-off continued into today, although the market recovered some composure to end off session lows. A better than expected nonfarms payroll increase of 117,000 versus the 85,000 expected saw unemployment fall from 9.2% in June to 9.1% in July. Funds sold an estimated 5,000 bean contracts, 2,000 meal and 3,000 oil lots on the day.
Corn: Sep 11 Corn closed at USD6.93, down 3/4 cent; Dec 11 Corn closed at USD7.03, up 1 1/2 cents. Corn did all of it's gaining at the beginning of the week, closing 27 1/2 cents higher on front month Sept versus last Friday. Funds sold an estimated 5,000 contracts today. A better than expected US jobs number stopped the rot that had set in this afternoon. After the close though news of a US credit rating downgrade by S&P's may get trade off to a shaky start again on Monday. The USDA are out next Thursday with their August US crop production/stocks estimates and world supply and demand reports. For US corn they are expected to drop yields but not into the 150-153bpa region that others in the trade are talking.
Wheat: Sep 11 CBOT Wheat closed at USD6.79, down 2 3/4 cents; Sep 11 KCBT Wheat closed at USD7.80 1/4, up 9 1/4 cents; Sep 11 MGEX Wheat closed at USD8.27 1/2, up 4 1/4 cents. On the week as a whole CBOT wheat was up 6 1/2 cents, with Kansas rising 13 1/4 cents and Minneapolis falling 3 1/4 cents. Funds were said to have sold 3,000 Chicago wheat contracts on the day. Strength in corn has spilled over into wheat this week, adding support. News that Iraq bought 100,000 MT of US wheat in a tender was friendly, although that may have had more to do with politics than price. Normal to below normal temperatures for Nebraska and the states north and east through to August 12th capped gains.
EU Grains Close
05/08/11 -- EU grains finished with Nov London wheat down GBP1.60/tonne to GBP159.65/tonne and Nov Paris wheat EUR1.25/tonne lower at EUR195.50/tonne.
At the end of another volatile week Nov London wheat shed GBP4.00/tonne and Nov Paris wheat EUR2.25/tonne. For London wheat a front month has only closed lower than this once since early October 2010.
After trading higher early in the week, global economic jitters took over in the latter half of the week to send grains tumbling. We now have a full weekend to wait to see what the world thinks of America losing it's AAA credit rating with Standard & Poor's on Friday night. It's now rated AA+ with a negative outlook.
There hasn't been a great deal of progress made with the French wheat harvest this past few days as rains return to the north of the country with harvesting stuck at around 75% complete.
The French Ministry have increased their wheat production estimate from 32 MMT to 32.5 MMT, a figure in line with other trade forecasts. They've also upped their OSR production estimate from 4.5 MMT to 5 MMT on the back of much better than expected yields.
We know what they mean, with the HGCA increasing their UK rapeseed yield to 3.6-3.8 MT/ha, 15% higher than the 5-year average, suggesting a record 2.6-2.75 MMT crop using Coceral's 720,000 ha planting estimate.
It's Getting Ugly Betty
05/08/11 -- Having fallen USD5.30/barrel yesterday, NYMEX crude has already added a further USD2.50/barrel to those losses by 8am this morning.
The overnight grains currently see corn down 10 cents, wheat down 12 cents and beans down 18-20 cents.
With the DJIA falling more than 500 points last night Asian markets have also collapsed this morning with the Japanese stock market falling 3.7% and Hong Kong's by 4.6%. Even gold is lower as everybody scrambles to get out of everything all at the same time.
The FTSE100 has just opened 138 points lower, for a fall of 2.5%.
Japan, the world's largest buyer of corn, has stepped in to devalue the yen which will make imports more expensive.
EU Commission President Jose Manuel Barroso has warned that the bloc's debt crisis is spreading. Thanks for the heads up on that one Jose, we hadn't noticed until you brought it up.
The pound is up to 1.1550 against the euro, and now seems to be eyeing a push through the 1.16 level, we haven't spent any length of time that high since March. Which is convenient for me as I'm going to Portugal next week, and it looks like I may be able to afford a beer or two after all.
Today I'm taking the day off to go shopping for a mankini....but I'll give you one of my famous predictions before I go, London wheat to open three quid down.
By the way, watch out for the US jobs data this afternoon, a further rise in unemployment (which is NOT what is expected) could be catastrophic.
Chicago Close
04/08/11 -- Soybeans: Aug 11 Soybeans closed at USD13.39 1/4, down 24 3/4 cents; Nov 11 Soybeans closed at USD13.45 1/4, down 27 3/4 cents; Aug 11 Soybean Meal closed at USD347.60, down USD5.40; Aug 11 Soybean Oil closed at 55.18, down 110 points. Risk aversion saw crude fall more than USD5.00/barrel and the Dow plunge more than 500 points. In a market like that there was only ever going to be one winner despite weekly export sales being better than expected at 680,200 MT and the USDA announcing a further sale of 174,000 MT of new crop soybeans to China. WxRisk say that there is little heat threat now until Aug 20th, or maybe even the entire month, east of the Mississippi. Informa Economics put the US soybean yield at 42.5bpa, in line with FCStone's estimate of 42.4bpa earlier in the week.
Corn: Sep 11 Corn closed at USD6.93 3/4, down 12 1/4 cents; Dec 11 Corn closed at USD7.01 1/2, down 11 1/2 cents. Crude oil slumped more than USD5.00/barrel in a risk off session that corn did relatively well in to only close with losses of around 12 cents. Funds dumped an estimated 13,000 contracts on the day, but that still leaves them net buyers on the week as a whole. US weather prospects are improving, with the 6-10 day outlook calling for above normal precipitation and below normal temperatures. Informa came out with a yield figure of 158bpa, much higher than the 150-153 levels that have been flying about all week, which would produce a record corn crop of 13.353 billion bushels. Weekly export sales were disappointing at 758,600 MT (850 thousand to 1.1 million MT expected).
Wheat: Sep 11 CBOT Wheat closed at USD6.81 3/4, down 28 3/4 cents; Sep 11 KCBT Wheat closed at USD7.71, down 27 cents; Sep 11 MGEX Wheat closed at USD8.23 1/4, down 21 1/2 cents. The strong dollar, weak outside markets, world economy woes and spillover weakness from corn and beans all dragged wheat lower. Whist weekly export sales were good at just over 500 TMT news that Egypt continues to shop elsewhere for it's wheat requirements, whilst no surprise, further re-enforced the view that America needs to keep the pencil sharp on price to match the current USDA export target. There's every chance that that particular bar will be lowered next week. Informa increased all wheat production slightly to 2.117 billion bushels.
EU Grains Close
04/08/11 -- EU grains finished lower with Nov London wheat down GBP2.75/tonne to GBP161.25/tonne and with May falling GBP2.60/tonnne to GBP168.85/tonne. Nov Paris wheat was down EU2.50/tonne to EUR196.75/tonne whist May12 fell EUR2.75/tonne to EUR201.00/tonne.
Economic jitters haven't quite turned to panic yet, but they aren't that far off. As I write NYMEX crude oil is more than USD5.00/barrel lower on the day and now looks like closing well under the USD90/barrel mark for the first time since February.
When European markets closed crude was only around USD2.00/barrel lower, so it is already looking like there could be some follow through to this in the morning. US grains are also sharply lower heading into the close.
EU economic worries saw the pound rise above 1.15 against the euro for the first time since late May. The dollar was also stronger on a flight to safety.
The HGCA have the UK wheat harvest at around 5% done, with winter barley 75% cut and OSR 65% complete. Yield estimates on wheat are too early to quantify, winter barley however is pegged at around 6 MT/ha and OSR at 3.6-3.8 MT/ha.
Weather worries in the US have eased considerably. WxRisk say: "Right now there is absolutely no indication of any kind that the serious heat (95+ degrees) that we saw in July over the Plains and at times in the Midwest will comeback into the Midwest before Aug 20. Unless the pattern begins to change soon over Eastern Canada and Greenland we may make it to the entire month of August without serious heat east the Mississippi River.
Egypt bought three cargoes of Russian wheat and one from Romania today at levels around USD262.00-262.50/tonne. It's interesting to see Romania featuring there, just to keep Russia on it's toes.
EU soft wheat export licences only rose by 157 TMT this week, almost 60% down on a week ago, taking total year to date exports to 1.13 MMT. Imports meanwhile are running at almost double that total - 2.18 MMT - a year ago that figure was just 146 TMT.
Early Call On Chicago
04/08/11 -- The overnight grains finished lower in a further correction from Tuesday's steep gains. Wheat ended with losses of 10-15 cents, with beans falling a similar amount and corn 10-12 cents easier. Both front month September wheat and corn ended below the USD7.00/bushel mark.
On the week so far, including the overnights, front month corn is up 29 1/4 cents, wheat up 25 1/2 cents and beans down 4 3/4 cents.
Crude oil is lower again today, hovering around USD91/barrel, the dollar is higher and gold is up as economic jitters reverberate around the globe.
The USDA have reported a fairly decent set of weekly export sales with wheat and beans at the top end of trade estimates, although corn sales fell slightly short. Namely, wheat sales of 504,000 MT (against expectations of 350 to 500 thousand MT), corn sales of 758,600 MT (850 thousand to 1.1 million MT expected) and 680,200 MT of soybeans (450 to 650 TMT expected).
They've also reported the sale of 174,000 MT of new crop soybeans to China under the daily reporting system.
US weather forecasts say "welcome cooling is on the way with variable rains the next 7 days," according to Martell Crop Projections. That appears to be cooling fund appetite to press the market much higher ahead of next week's USDA reports, and serving as a reminder that yield potential can go up as well as down in August.
The stop-start European harvest looks set for another impromptu break as wetter weather moves in from the west. Not much damage has been done yet.
Egypt have just bought three cargoes of Russian wheat and one of Romanian wheat at levels around USD262.00-262.50/tonne.
Informa Economics are due out with their thoughts on yields and crop production later in the day.
Early calls for this afternoon's CBOT session: beans 12-15 cents lower, wheat and corn down 10-12 cents.
BoE Leave UK Rates On Hold
04/08/11 -- Which crazy loon saw that one coming. Oh, yes it was me. I also predict that it will get dark later this evening, Rangers won't do very well in this season's Champion's League and a brown horse will win the Grand National.
The ECB also left rates on hold at 1.5% in the eurozone, whist Spain successfully auctioned off EUR3.3 billion of bonds. The April 2014 maturing bonds had an average yield of 4.8% up from 4.3% at a similar auction a month ago.
The one to watch is the yield on Spanish 10-year bonds, currently trading at around 6.1% after hitting a record high during the lifetime of the euro of 6.46% earlier this week. It is widely regarded that anything above 7% is unsustainable and will mean a bailout.
