“While everyone is waiting for the end of the corn pollination period in the USA, Europe and the Black Sea region, the quality of wheat has become the main problem. The wheat market is now unbalanced by lower production forecasts in Russia and a shortage of fodder grain, while buyers are not willing to pay a high premium for the protein that Russian producers are waiting for. As we had predicted earlier, the focus on expensive corn was temporarily shifted to wheat. So far, because of the pressure of the proceeds from the fields, prices have weakened, but a recession is possible due to the risk of reducing the harvest and issues with a sufficient supply of feed grains.”
Elena Faige Pitek (Neroba)
Head of Analytics at Marcopolo Commodities SA
The new round of trade negotiations between the United States and China resumed, but Donald Trump made it clear that he was not happy with their progress. In a series of tweets on Tuesday 30th of July, he criticizes China, accusing it of failing to fulfill promises and abandoning agreements at the last moment, and warned that he would respond to the delay in negotiations by the Chinese side. Trump mentioned that China’s economy is in the worst state in the last 27 years, while the US economy has become much more Chinese in the last three years. In his Tuesday’s tweet, Trump said that China has lost 5 million jobs and 2 million workers in the manufacturing industry due to the tariffs it introduced. But at the same time, for example, Americans agrigigants fortunes change a year into a trade war. Analysts cut average annual profit estimates for ADM by 6.2% in the past three months, Bunge by 1.8%
A record number of Chinese companies defaults on bonds and declares itself bankrupt. The main reason is excessive debt load amid the economic slowdown. Bonds of troubled Chinese Bank of Jinzhou collapsed yesterday by almost 10%. There are rumors in the market about its imminent collapse. Despite all assurances of Bank of Jinzhou in its sovereignty, its bonds collapsed at the opening of trading on Thursday by almost 10%, but then some of the losses were won back.
Recall that in June, China nationalized Baoshang Bank, which was the first such case in the last 20 years, when Hainan Development Bank was nationalized. The collapse of Baoshang Bank clearly alarmed the Bank of China, which uploaded $ 36 billion into the system, which was a record high since January. Then the Bank of Jinzhou bonds fell by 20%. As of the end of June 2018 (there are no financial reports of the bank for later periods), Bank of Jinzhou’s assets amounted to $ 109 billion.
But this is not the only one macroeconomics news runs the market. The dollar jumped up briefly in response to the sharp rise in consumer confidence in the US in July - to 135.7 points, which is the highest figure since November last year. The report was published by the research organization Conference Board, which calculates this indicator. In June, according to revised data, the indicator was 124.3 points, not 121.5 points, as was previously announced. Analysts on average expected a less significant jump - up to 126 points.
The dollar’s growth has quickly exhausted can be explained by the fact that now all attention is directed to the Fed’s decision Wednesday, July 31, 2019, which can not only lower the interest rate for the first time in 10 years, but also hint at further mitigation of the policy.
This amount, most likely, will not be able to significantly weaken the dollar, which makes “even more important” the US need to attract other countries to intervene in the markets. However, “in the current conditions of world trade friction, intervention for competitive devaluation of the dollar” is unlikely to receive international support. As a result, the US movement to weaken the dollar is likely to be ineffective and will turn into half measures, even if they receive some kind of “short-term symbolic” support.
Bonds from developed countries and safe-haven assets, such as the yen and the Swiss franc, are likely to rise, given that such a move will exacerbate trade tensions. All these macro events make a pressure on the grain market globally.
But if we talking directly on corn and wheat, we should keep in mind that the Sterling continues to underpin domestic values as it dropped to its lowest level since March 2017 and September 2017 against the US dollar and the single currency respectively whilst Euronext wheat was supported by potential wheat exports to Algeria, the third-largest wheat importer in the world. The northern African country is in the market and once again, France which is in (desperate) need to find demand with confirmation of a bumper 2019 harvest could secure good volumes although it will continue facing fierce competition from the Baltic region and the Black Sea. US markets simply could not end up higher with wheat harvest pressure, improving corn condition, a strengthening dollar and last but not least a tweet from US President Trump warning China that ‘if and when’ he is reelected, ‘the deal that they get will be much tougher than what we are negotiating now ... or no deal at all’. As of the end of last week, 58% of the US corn crop was in ‘Good/Excellent’ condition compared with 57% the week before, 72% last year and 71% on average. As a result, Dec-19 CBOT corn fell and settled at its lowest level in more than two months. The US corn crop is still very late with just 58% at the silking stage compared with 90% last year and 83% on average.
While everyone is waiting for the end of the corn pollination period in the USA, Europe and the Black Sea region, the quality of wheat has become the main problem. The wheat market is now unbalanced by lower production forecasts in Russia and a shortage of fodder grain, while buyers are not willing to pay a high premium for the protein that Russian producers are waiting for.
Harvesting campaign of early grain in the Northern Hemisphere is in full swing. French wheat is stable. French wheat condition stable at 73% v 71% in ‘18 Harvest now at 63% v 88% LY.
According to the Russian AgMinistry, the country’s 2019 grain harvest is well ahead of the 2018 pace with already 51.3MMT of grains harvested from 14.9Mha compared with 39.4MMT from 11Mha last year.
Ukrainian agrarians already harvested 29,7 mln tonnes of early grains and pulses throughout the areas of 8 mln ha, or 80% of the forecast and already supplied 2.614 mln tonnes of grains and pulses on foreign markets.
Already you can analyze the first Soft Wheat Exporters in EU July 1-28, 2019. Big production year on the cards but July exports are lagging at 761,586 mt vs 1.7 mmt (5-year average) and Russia isn’t even competing. The EU is expecting 25.5 mmt of exports. Prices are bound to come off soon.
Nowadays is tendering time. Not only Egypt’s GASC arranges tenders. Jordan’s state grains buyer purchased 60,000 tonnes of hard milling wheat to be sourced from optional origins in a tender for up to 120,000 tonnes, which closed on Tuesday, traders said. The wheat was bought at $229.50 a tonne c&f for shipment in the second half of October. The seller was said to be trading house Nibulon (Ukraine). One other trading company, Ameropa, took part in the tender, offering $234.12 a tonne c&f.
So main for now is wheat S&D. Globally wheat is overproduced but the weather could make the biggest impression even for the last harvesting weeks.
Talking on corn, the leader for today is information about crop condition at corn belt (we still remember also about unknown areas in the US). If we would try to find the answer does crop condition correlate with final yields – no. Numbers which provides Karen Broun from Reuters on her Twitter show that for example Illinois conditions, corn, good/excellent: 7/31/16 - 83%, 7/30/17 - 63%; Illinois yield, final, bushels per acre: 2016 – 197, 2017 - 201. But also: 7/27/14- 82% g/e, 7/26/15 - 57% g/e; 2014- 200 bpa, 2015 - 175 bpa. Rains cut the area for sure. Now we are worrying about hot weather as per pollination. French corn condition hits 67%v 75% a week ago, 71% in ‘18; Silking at 63% v 89% LY.
Meanwhile, in Southern Hemisphere, a unit of Brazil’s JBS SA plans to invest $47.5 million to build a biodiesel plant entering service by 2021, as the company looks to cash in on Brazil’s accelerating clean fuel drive. Soybean is the main raw material for biodiesel production in Brazil.
Trump’s tweets about China and expectations of reduced Chinese soy imports in 2019/20 due to the African Swine Fever pushed Nov-19 CBOT soybeans below the $9/bu mark once again. Soymeal prices were also under pressure with the Aug-19 CBOT soymeal contract closing at a 2-month low below the $300/sT psychological level after China was reported to visit Argentine soymeal crushing plants soon. US soybean ‘Good to Excellent’ ratings were unchanged on last week at 54% compared with 70% last year whilst 57% of the crop was blooming vs 85% last year and 79% on average.
Despite the sharp decline in the 2019 EU production, rapeseed continued lower for a 4th consecutive session - its longest losing streak in a month - amid harvest pressure, the arrival of Ukrainian and a weakening soy/veg oil complex.
As we had predicted earlier, the focus on expensive corn was temporarily shifted to wheat. So far, because of the pressure of the proceeds from the fields, prices have weakened, but a recession is possible due to the risk of reducing the harvest and issues with a sufficient supply of feed grains. After that, corn will return to the arena with news about the real situation in the US and loss figures in Europe and Ukraine.