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Market Report 10th August 2018


Markets higher early in the week before consolidating, as USDA release bearish corn/soybean data, with declines in wheat production less bullish than expected. USDA Headlines:

  • US corn yield estimated at a record 178.4b/a, above trade expectations. (176.6b/a last season). Production consequently moved 9.05mmt higher to 370.51mmt.

  • World wheat production lowered 6.6mmt to 729.63mmt, despite the trade anticipating a sharper decline. Australian/Canadian estimates unchanged, despite falling private estimates. EU production lowered 7.5mmt to 137.5mmt (Strategy Grains 127.7mmt).

  • Russia/Kazakhstan’s estimates also raised 1.5mmt, whilst global consumption reduced 5.1mmt, leaving ending stocks only 1.9mmt lower than last month at 258.96mmt.

  • US wheat crop reduced marginally to 51.08mmt, although sharper declines were expected for spring wheat following the US Crop Tour results.

  • Russian wheat crop private estimates placed at 70.4mmt (IKAR) and 68.4mmt (Sovecon), down 600tmt and 1.2mmt on prior figures respectively (USDA 68mmt).

  • US funds estimated net short -68k (corn) -63k (soybeans), long 124k (ks+ch wheat).

  • Talk of Russia restricting wheat exports at some stage continues to circulate with internal prices rising as a consequence of the weaker Ruble and food inflation very politically sensitive historically. Any suggestion of a cap would see a sharp reaction from markets.

WEATHER/CROP DEVELOPMENT US

  • Corn Belt weather continues to appear largely benign. Temperatures are expected to be normal/above normal for the next 2 weeks, though heat is not expected to be excessive. Showers expected across Southeast areas.

  • Western Australia receives up to 15mm of rain though the driest Eastern areas continues to look hot/dry.

  • Saskatchewan topsoil moisture rated 58% short/very short. Harvest progress estimated at 1% complete, in line with the 5 year average.

  • BAGE place Argentine wheat seeding at 98.7% complete, with conditions reported to be largely good.

  • UK winter wheat harvest estimated to be 60% complete (5 year average for this time of year circa 30%). Early yields based on data from the South of England suggest an average of approx. 7.8t/h, down from the average of 8.2t/h.

BOTTOM LINE:

  • USDA occupied the focus this week, with wheat data less bullish than expected, leading markets sharply lower Friday, aided in part by weakness in soybeans/corn.

  • Trade perception remains that Global wheat availability should tighten significantly this season given the likely EU/FSU production declines, with crop issues in Australia/Canada also yet to be fully accounted for by the USDA.

  • That being said, bullish sentiment may continue to be tempered by prospect of a record high US corn crop, as well as negative sentiment associated with the ongoing US/China economic struggle. Trade will be conscious of the large US fund long in wheat and that a sell-off could be triggered at any time, given the scale of the rally to this point.

  • Expect weather/private crop estimates to regain the focus over the next few weeks, with the volatile price action likely set to continue.