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Market Report 1st June


Markets ease this week as US fund liquidation drives selling. Renewed concerns around US/China trade talks, improved US weather outlook and month end trading, all act as catalysts.

  • US corn conditions reported at a 5 year high of 79% g/e for this time of year, surprising the trade and triggering a sell-off.

  • EU Commission lower their 2018 wheat crop estimate by 1.2mmt to 140.3mmt. Exports left unchanged at 27mmt (21mmt this year).

  • Algeria buys 120tmt wheat, likely French origin (700tmt bought over the course of the previous week).

  • Strong US weekly exports for corn of 993tmt (well above expectations), wheat exports of 301tmt and soybean sales of 1.045mmt were in line with market expectations.

  • US/China trade talk uncertainty continues, adding general weakness to commodity markets.

  • US funds estimated net short 30.3k (wheat), long 179.5k (corn) and 69.1k (soybeans).

  • FcStone estimate Brazils’ total corn crop at 74.5mmt, down 5.5mmt on their previous est. (USDA 87mmt). Private analysts continue to generally lower Brazilian output week on week.

  • Egypt reportedly rejects 63k wheat cargo from Russia for ergot. 0.06% tested, against the limited of 0.05%.

WEATHER/CROP DEVELOPMENT

  • Southern Russian/Ukrainian weather continues to appear problematic. Forecast for the next 10 days suggest light showers mid-week, followed by a chance of heavier rain at the weekend. Below average moisture and above average temps continue to be the theme otherwise. These areas have now had little meaningful rain for over 2 months. If rainfall remains limited in June, further crop losses will be expected.

  • Russian spring wheat planting delays in Volga/Siberia due to wet weather also an issue, with the weather pattern here, showing little sign of easing.

  • US Corn Belt weather remains unthreatening, though above normal temps have been drawing additional focus. Planting progress estimated 97% completed versus 95% average.

  • US winter wheat harvest has begun with progress believed to be around 6% complete versus 10% average for this time of year. Updated spring/winter crop conditions will be published later today.

  • Warm/dry conditions for US Southern Plains this week, though rains are expected to follow.

  • Canada and US Northern Plains receive much needed rains.

  • French soft wheat conditions placed at 80% g/e, up 1% on the week. Corn conditions dropped slightly to 84% g/e (86% previously).

  • Areas of Germany/Poland in need of moisture after a prolonged spell without rain.

  • Better rains for some dry parts of Australia, though some Eastern areas remain dry.

BOTTOM LINE:

  • Technical selling appeared to take over this week as markets ran out of buying after several weeks of upward price movement. Largely unthreatening US weather, improved Canadian forecasts and some chances for rain in FSU areas contributed to the selloff.

  • Trade attention this month will be heavily focussed on Russia/Ukraine, given the last 9/10 weeks of hot/dry weather. Russian wheat declines from 85mmt to 70mmt are already being discussed. Any further downgrade would significantly change world S&D’s, likely switching export demand to the US.

  • Conversely, a pattern change to heavy rain could instigate sharp fund liquidation. As such, expect volatile, weather focused trade to continue, with US/China talks also likely to be closely monitored for developments.

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