Market Report on 21.09.18
£/$1.3226 £/E1.1208 E/$ 1.1791
Chicago wheat traded sideways for most of the day yesterday before managing a slightly higher close, despite the big gains in corn and beans. Most of the gains in those markets came from some fund short-covering but with the funds having a relatively small position on wheat, position squaring was never going to really be a big factor. European markets were mixed, with Matif managing slight gains while London saw some small losses. Fresh news on wheat was mostly limited to weekly US export sales, which came in at 469,000MT to leave the season total at 10.2MMT. This is down 22% on last year, although the gap continues to decline week on week. ABARES’ weekly Australian report reinforced daily weather reports showing very little rain for any of the main wheat-growing areas for at least the next two weeks. ABARES’ weekly reports never say much about crop development or yield prospects, but this is an important time for determining wheat yields. Chicago corn bounced around 10 cents yesterday before closing around 7 cents higher on the day. Decent export sales provided the initial support, coming in well-above expectations at 1.38MMT with the season total now up 50% on last year at 16.6MMT as the US remains the go-to origin for corn. However the real push higher came from heavy fund-buying later in the session, with estimates suggesting funds came in to buy around 28,000 contracts (~3.5MMT). With harvest continuing in the US, there were continued reports that early yields are variable and that production will not reach the USDA's lofty expectations. In the EU, Matif rose €1 yesterday on talk of a potential import levy but yesterday's price action on Chicago should kick that can down the road.
The Chicago soya complex managed strong gains yesterday, with heavy fund buying the main driver. Funds were reported buyers of 1.9MMT of beans, 455,000MT of meal and 108,000MT of oil. Inflation fears, dollar weakness and reports of more US bean sales to Argentina (up to 10 cargoes) were all reported as reasons for the short-covering. Weekly US export sales on beans were above expectations at 918,000MT but the season total of 17.9MMT remains 7% down on last year. Although it is early in the season, on an annualised basis this pace would add another 2.2MMT of beans to US end stocks which would likely propel them well above 24.5MMT. Thus without a resolution to the US-China trade war or a significant South American crop issue, a sustained rally in prices looks tough. In terms of the US/China dispute, with China unable to go tit-for-tat (or tariff-for-tariff) with the US due to the trade imbalance, China’s strategy is expected to switch to reducing import tariffs on other countries as a way of further excluding the US from trade. In South American news, the Argentine Ag Ministry left the 2018 soybean crop unchanged at 37.8MMT.
FX & ENERGY
Sterling had a mixed day yesterday but still finished higher on the day. Early support came from the release of the August Retail Sales report, which came in much higher than expected at +0.3% MoM and +3.5% YoY, well above the -0.2%/2.4% expected. There were also upward revisions to the previous months figure. Dollar weakness and some more positive tailwinds from what appeared to be a more conciliatory EU attitude to Brexit took cable to near $1.33 in the middle of the session. However the pair fell back later in the session, after EU leaders warned Theresa May that her economic plan for Brexit “will not work” and gave her four weeks to save the exit talks.