Wheat market freefall Monday (and continuing today) amid concern over vulnerability of large managed fund wheat long, seasonal tendency for wheat to decline LH Aug/FH Sept, lower early week offers on Black Sea wheat and report that Russian exporters may accelerate Q4 2018 wheat sales ahead of possible 2019 export curbs. Russian Ag Minister overnight going out of his way to assure world buyers that grain supply is increasing, that current prices are not excessive and that export curbs are not being considered.
Corn dragged lower by wheat and better than expected corn yields from Pro Farmer SD/OH tour.
Weather leans negative with dry US crop areas to 10% or less by middle of next week. E Australia slated for rains on Friday before reverting to prevailing dry pattern. Delta dries out the next 2 weeks following generous mid-August rains. 11-15 day US Midwest temps slightly warmer again but only high 80’s-low 90’s.
USDA reports 250 tmt N/C US meal to unknown (possibly Philippines).
(Tuesday AM PF Twitter) “More good results. So far average yield number out of NE is 206 and IN 192. USDA at 196 & 186 in those statesâ€.
Reports of high quality 2018 EU wheat harvest (despite lower crop) and prospect for same across N American HRS belt (US and Canada) suggests that any seasonal gain in MWZ/WZ will be delayed until late September at the earliest. Attached MLS/CGO seasonal wheat chart documents contraseasonal May/June decline in MLS/CGO wheat amid favorable start to 2018 HRS growing season. Recall WASDE has 6/19 US HRS stocks (assuming 584 mil bu crop—up nearly 200 mb vs. LY) swelling to 262 mb vs. 191 mb on 6/18. Other analysts are considerably more cautious on size of 2018 US HRS crop—a debate which will not be resolved until USDA’s Sept 28th Small Grain Annual. Until then—advise standing aside from bull spreading MWZ/WZ.
JPM urges caution on this week’s US/PRC trade talks by noting “there have been a few head fakes on this front over the last several months and thus people are keeping their enthusiasm in checkâ€.
Highlights of CWG reporting yesterday include:
o Warm Midwest Sept will accelerate crop dry down: no sign of early frost o Only Sept glitch is likelihood of slow initial harvest for OH Valley/Delta o Ample pre-plant US HRW moisture will boost stands and initial ratings o E Australia likely reverts dry next month o NE 1/2 of Argentina at risk for above average moisture o 2019 Brazil CN/BN/Rice/Cotton yield near to above trend except for possible dryness in S ¼ of belt
Bottom line—we remain skeptical regarding any breakthrough on US/PRC trade which (against backdrop of favorable/ yield boosting Aug rains) suggests that soy rallies will be capped while hope that trade negotiators can restore flow of US soy to PRC will support SX above $8.40 area. Managed fund wheat longs are vulnerable—ditto for their modest (but shrinking) short in corn. Decline in summer Brazil corn loading vs. LY should translate into stepped up US corn sales and shipments.
Palm Oil: Down 14 ringgits at 2241
Dalian: Beans down 2.5 cents/bu, meal down $1.60/ton, oil down 11 and corn unched.
Matif Wheat: Down 2.75 euros at 206.25
Outside Markets:
• (JPM on overnight) Trump’s Reuters interview is dominating the financial wires and the most immediate effect is a weaker USD as he hit out (again) at the Fed’s rate hikes (while a loss of central bank independence would obviously be a negative for stocks, for now Trump’s words are a net positive in that they are weighing on the dollar (DXY down another ~30-35bp) and a lower USD is a prerequisite for equities to march higher). Trump downplayed expectations for the US-China trade talks this week (and there was a separate WSJ article also cautious on the negotiations occurring Wed and Thurs) but investors didn’t really expect any breakthroughs this week (that being said, it doesn’t seem like the tape is prepared for the 25%/$200B tariff tranche to go into effect in Sept and so hopefully some type of an agreement occurs soon).
• (JPM on Trump’s Fed comments) Trump’s language prob. won’t have much bearing on the Fed’s actions and it seems like we’re a long way from Trump making outright staffing threats. To the extent markets begin worrying about Fed independence, this language from the White [email protected]
House will undermine broader market confidence. However, for now Trump’s words could weigh on the USD (which would be a tailwind for the SPX and esp. EM).
• (WSJ) Trump is pursuing a dual-track approach to China trade w/the USTR moving forward w/tariffs while the Treasury holds compromise talks w/Beijing (the next round of negotiations will occur Aug 22-23 in Washington).
• (Reuters) Fed could be forced to slow its tightening campaign owing to int’l headwinds (including emerging market pressures and slower growth in Europe).
• (Bloomberg) The U.S. risks losing out from its curbs on trade as rival nations including China will seek to do more business with each other, the CEO of the world’s largest miner warned. Protectionism will dampen global growth and China may react by spurring domestic demand and helping exporters, BHP Billiton’s Andrew Mackenzie said in a Bloomberg TV interview. Trump’s tariffs will raise prices and deter consumers as they realize the “true economic costs.”
• (WSJ) The Trump administration is pushing back its timetable for completing a controversial investigation into whether to impose tariffs on auto imports, as officials try to negotiate agreements with some of the world’s largest car exporters. In an interview Monday with The Wall Street Journal, Mr. Ross said it is now “not clear the report will be out at the end of the month.” He said the delay was “in view of the negotiations” ongoing with the European Commission, Mexico, and Canada. Mr. Ross also suggested that it was taking longer than anticipated to sift through the reams of material submitted by auto makers in the U.S. and around the world opposed to the prospect of new tariffs pushing up the costs to consumers and disrupting global supply chains.
• (Bloomberg Opinion) The U.S. budget deficit is spiking with few prospects of it narrowing soon, Georgetown University’s Stan Collender writes in USA Today. Trump and allies in Congress are weighing steps that will further boost spending and cut revenue. While they’re focused on 2018 and 2020, they should at least acknowledge there’s a problem that will last long after those elections.
• (Bloomberg) Investors might be underestimating the contagion risk for Brazil, cautions Harvard economist Carmen Reinhart, whose warning in May proved prescient. It’s particularly susceptible to Turkey’s turmoil given their shared lenders, which might be less willing to extend Brazil further credit. Uncertainty in the presidential race doesn’t help. Jailed expresident Lula gained support in the latest opinion poll, but his supporters don’t look likely to back his probable heir if he’s barred from running.
• (Reuters) – China’s central bank said on Tuesday that it will not resort to strong stimulus to support the slowing economy but will keep liquidity reasonably ample and offer more help to companies which are having trouble obtaining financing. Officials also reiterated that China will not use the yuan as a weapon to deal with trade frictions, a day after U.S. President Donald Trump told Reuters Beijing was manipulating its currency in response to U.S tariffs on imported Chinese goods. Policies will be made more forward looking, flexible and effective, the People’s Bank of China (PBOC) said in a statement issued at a briefing in Beijing
• (Washington Post) For the first time in human history, more than half the world’s population at the moment is either rich or middle class; the middle class alone will be 50% of the global population by ’20
• (Reuters) NAFTA – foreign automakers w/US plants don’t support the White House’s NAFTA Plan.
• (Reuters) Trump says he will make “no concessions†to Turkey as the two countries continue to battle over the detained pastor.
• (WSJ) Venezuela’s neighbors are beginning to erect barriers to stem the flow of refugees pouring out of the country
• (Reuters) Beijing and Tehran are both taking actions to circumvent new US sanctions and keep crude flowing between the two countries.
• (Reuters) U.S. supplies of diesel and heating oil are expected to be tight in coming months, market participants said, likely raising prices ahead of peak hurricane season and as farmers begin their fall harvests and North American homeowners prepare for winter. While peak demand for these products typically begins in the United States in autumn, U.S. inventories for the products are at seasonal four-year lows. Strong demand from Latin America has diminished supplies as has the strong global economy, analysts said.
• (Reuters) The U.S. Department of Energy (DOE) is offering 11 million barrels of oil for sale from the nation’s Strategic Petroleum Reserve (SPR) ahead of sanctions on Iran that are expected to reduce global supplies of crude. The delivery period for the proposed sale of sour crudes will be from Oct. 1 through Nov. 30, according to Monday’s notice.
• (Reuters) Hedge funds have cut their bullish position in crude oil and refined fuels to the lowest level for almost a year, as fund managers continued to close out former long positions. Hedge funds and other money managers cut their net long position in the six most important petroleum futures and options contracts by 69 million barrels in the week to Aug. 14
• (JPM on calendar for Wed 8/22) The focus will be on US-China trade negotiations (which are due to run Aug 22-23), US existing home sales for Jul (10amET), FOMC meeting minutes (2pmET), and earnings.
Ag Markets:
• US corn rating down 2% to 68% G/E vs. 62% LY and 68.8% average. 44% dent vs. 26% average. TX corn 51% cut vs. 44%average.
• US soy rating down 1% to 65% G/E vs. 60% LY and 65.8% average. 91% pod set vs. 83% average.
• US HRS rating down 1% to 74% G/E vs. 34% LY with harvest up 25% to 60% vs. 44% average.
• (Reuters) – Russia’s Agricultural Ministry has upgraded its forecast for the country’s 2018 grain crop to 100-105 million tonnes from a previously expected 100 million tonnes, it said in a statement on Tuesday. Such a crop will fully cover Russia’s domestic demand and will leave a significant amount of grain available for exports, the ministry added.
• (Reuters) – Russia’s agriculture ministry does not currently see any reason to introduce an export duty on wheat and is not considering one, Agriculture Minister Dmitry Patrushev was quoted as saying by RIA news agency on Tuesday. “So far there is no basis for the introduction of the grain export duty. The current price is not extraordinary,” he said.
• (Reuters) Trump does not anticipate much coming from PRC trade talks this week and that there is “no time frame†for ending PRC trade dispute.
• Some concern over low water on US rivers by early Sept as Midwest harvest gets underway.
• Funds Monday sell 6K corn, 9K wheat and 1K meal while buying 3K oil.
• (Twitter) Projected yields in Ohio and South Dakota from day one of the Pro Farmer Crop Tour topple recent history. SD corn at 178 BPA vs. 148 LY and 154.6 average. “This is probably the best Ohio corn crop that I can remember in doing the tour,†says Brian Grete, Pro Farmer editor and leader of the eastern leg of the Crop Tour. “It was the ear count that really drove the numbers—almost 100 ears in 60 foot of row.†Ohio corn averaged 179.57 bu. per acre and soybeans hit 1,248.20 pods per 3X3 square. In 2017 the state estimates were 164.62 and 1,107.01 for corn and soybeans, respectively. 2018 estimates blow the three-year averages out of the water, too at 153.98 bu. per acre in corn and 1,095.77 pods in a 3X3 square in soybeans.
• AgriCensus) Brazil’s Attorney General is expected to this week submit an appeal against the decision to impose a temporary ban on the use of the chemical glyphosate in Brazil, after a US court branded the chemical carcinogenic and ordered its manufacturer to pay millions of dollars in damages.
• (CME Daily Livestock Report) The ASF situation in China is a different order of magnitude since the Russian hog herd is around 22 million head compared to 433 million in China. Studies have shown that disease transmission is highly correlated with low biosecurity on farms. There is a large number of backyard farms and small commercial farms that have low biosecurity. In Russia it is estimated that 35% of hogs are in backyard farms and we would guess that in China the share is just as large if not larger. The demand impact from the spread of the disease could be as impactful as the losses due to culling. This disease is unknown in China and unfortunately in recent years there have been a number of food safety issues, whether with contaminated milk or avian flu. Chicken demand has suffered in China in recent years and has probably contributed to the dramatic increase in demand for beef. The potential spread of ASF, even though it does not harm human health, could negatively impact consumer demand in a country that has one of the highest pork consumption rates in the world. There is the potential for an increase in demand for imported pork, which as with milk, is considered safer.
• (Reuters) Beijing Dabeinong Technology said on Monday a big portion of its newly expanded pig farming capacity is idle, increasing production costs and pushing one of China’s top pig farmers and feedmakers into its first loss in years. It also blamed weak second-quarter results on the rising cost of feed ingredients, including soymeal.
• (Reuters) Dry and hot weather across most Ukrainian regions may reduce the maize yield and could affect the 2019 winter grain sowing, analyst UkrAgroConsult said on Monday. “This (hot and dry weather) adversely affects the completion of growth of late crops and hampers the accumulation of soil moisture for sowing 2019-harvest winter crops,” it said in a statement. Ukraine has already completed the 2018 early grain harvest and plans to start maize threshing in coming weeks.
• (Reuters) Russian wheat export prices fell last week on the back of a weaker rouble currency, which is close to its lowest level since April 2016 due to threats of more U.S. sanctions, analysts said on Monday. The decline in prices, however, was limited by speculation about potential export limits in Russia, the world’s biggest wheat exporter. Russian exporters may step up grain shipments in the next few months in anticipation that the government could put curbs on exports sometime after December, traders said.
• (Oil World) World wheat trade slowed down pronouncedly in 2017/18, despite record Russian exports. (Note however that USDA has 17/18 global wheat exports at 182.6 mmt vs. 183.3 mmt prior year)
• (Reuters) – Russian exporters may step up grain shipments in the next few months in anticipation that the government could put curbs on exports sometime after December, traders said. Speculation about potential export limits in Russia, the world’s biggest wheat exporter, pushed global wheat prices sharply higher on Friday, adding to worries about tightening global supplies after drought has cut harvests from the Black Sea to Europe and Australia. Russia’s 2018 wheat crop is forecast by the U.S. Department of Agriculture to fall to 68 million tonnes from a record 85 million tonnes in 2017. It will still be a large crop compared with the average of the last five years but traders have said pressure for some form of grain export restraint has been coming from Russian meat producers complaining about rising costs of animal feed and from farming regions hit by dry weather.