LAST WEEK MARKET COMMENT
SANDRO FILIPPO PUGLISI
Ag commodities' markets scholar (Wheat, corn, oilseeds, etc.)
US farm markets were mixed, but mostly higher, last Friday.
Corn prices were up 0,34% at the end of the Friday session and 0,54% for the week, setting the highest price for front month futures since the week of July 14 (when July went off at a big inverse to September).?
Soybeans rose 0,63% for the week end session's and by 1.4% for the week.?
Soybean meal rose 1,93% for the session and 3.5% for the week.?
Soy oil was down 1,41% on Friday and 0.35% for the week.?
Wheat futures ended Friday session higher on Chicago (+0,58%) and Kansas city (+0,78%), while were down 0,41% on Minny.
For the week, in the KC were up 0,56%, in MPLS 0,08%, meanwhile in Chicago settled by 1.3% lower than it was the previous Friday.
On macro markets, oil prices fell on Friday and were also down on the week.
Brent crude futures, indeed, settled down $1.50, or 2%, at $73.52 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.52, or 2.1%, to settle at $70.86 a barrel.?
Brent was down 2.6% on the week and WTI fell 1.3%.
Meantime, oil prices slumped by more than 2% on this morning as surging cases of the Omicron coronavirus variant in Europe and the United States stoked investor worries that new restrictions on businesses to combat its spread may hit fuel demand.
Meanwhile, U.S. energy firms this week added oil and natural gas rigs for a second week in a row.
The oil and gas rig count, an early indicator of future output, rose by three to 579 in the week to Dec. 17, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.?
In this context, Brent crude futures fell $1.92, or 2.6%, to $71.60 a barrel by 04:36 GMT while U.S. West Texas Intermediate (WTI) crude futures fell $2.09, or 3%, to $68.77 a barrel.
Still, lower exports are expected from Russia with exports and transit of oil from the country planned at 56.05 million tonnes in the first quarter of 2022 versus 58.3 million tonnes in the fourth quarter of 2021, a quarterly export schedule seen by Reuters showed on Friday.?
China's diesel exports in November plunged 69% from a year ago as refineries prioritised domestic supply to ease a fuel crunch with state-backed refineries having raised oil processing rates.
On the freight market, the Baltic Exchange’s dry bulk sea freight index declined on Friday, posting its biggest weekly fall since early February 2019, as demand waned across its vessel segments.
Indeed, the overall index, which factors in rates for capesize, panamax and supramax vessels, was down 119 points, or 4.8%, to its lowest level since mid-April at 2,379.
The main index lost 27.3% past week.
The capesize index shed 167 points, or 5.8%, to an over six-month low of 2,727.?
It posted a 43.5% weekly decline, its worst week since May-end 2020.
Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, decreased by $1,390 to $22,613.
The panamax index lost 182 points, or 6.9%, to its lowest in over three weeks at 2,444. It fell 20.3% last week.
Average daily earnings for panamaxes, which ferry 60,000-70,000 tonne coal or grain cargoes, fell $1,636 to $21,994.
The supramax index fell 45 points, or 1.8%, to 2,469, its lowest since Dec. 6.
On equities markets, on Friday the Dow Jones Industrial Average fell 1.48% to end at 35,365.44 points, while the S&P 500 lost 1.03% to 4,620.64.
The Nasdaq Composite dropped 0.07% to 15,169.68.
The small-cap Russell 2000 index rallied 1%.
For the week, the S&P 500 fell 1.9%, the Dow lost 1.7% and the Nasdaq declined 2.9%.
The U.S. Dollar Index increased slightly from last week's 96.074 to close at 96.548.
Meantime, on this morning Asian stock markets followed Friday's Wall Street lower.
Indeed, Shanghai, Tokyo, Hong Kong and Sydney retreated at the start of a trading week that ends with many closing early for Christmas.
Particularly, the Shanghai Composite Index fell 0.8% to 3,605.21 and the Nikkei 225 in Tokyo tumbled 2.1% to 27,942.84.?
The Hang Seng in Hong Kong sank 1.5% to 22,837.64.
The Kospi in Seoul retreated 1.5% to 2,971.59 and Sydney's S&P-ASX 200 lost 0.2% to 7,292.10.
India's Sensex opened down 2.1% at 55,811.05.?
New Zealand gained while Singapore and Jakarta retreated.
The U.S. government warned Sunday of a possible surge of “breakthrough infections” due to Americans traveling for the Christmas and New Year holidays.
On the weather side, soil conditions improved last week for portions of the Plains states, from Wyoming and eastern Montana, stretching across the Dakotas and into Nebraska.?
Beneficial snowfall and precipitation led to short-term improvements to the drought.?
Warmer temperatures have allowed melted snow to seep into warmer soil, improving the overall soil moisture profile.?
Conversely, warmer temperatures did not help Texas or Oklahoma, where hot and dry conditions have led to deteriorating soil moisture.?
In the PNW, snow accumulated in high elevations from Oregon to Idaho.
However, according to the USDA, as of December 14, 2021 a significant portion of U.S. wheat acres are experiencing drought.
Particularly, approximately 53% of winter wheat production is within an area experiencing drought;
- approximately 69% of spring wheat production is within an area experiencing drought;
- approximately 86% of durum wheat production is within an area experiencing drought.
Meantime, the week start with an unsettled weather lingers over the Pacific Northwest and the northern Rockies as the next wave of moisture reaches the West Coast.
Low pressure system in the Gulf of Mexico to deliver heavy showers and thunderstorms to Florida and the Southeast coast.
Dry and mild throughout much of the nation's midsection but cold with occasional light snow across the northern tier.
Coming back on grain markets, the weekly CoT report showed managed money firms were 345,980 contracts net long in corn on 12/14.
That was a 13,479 contract stronger net long than the previous week, mostly driven by net new buying.?
Commercial corn hedgers added shorts for the week, extending their net short 13.3k contracts to 648,338.?
As for soybean, managed money firms were 40,975 contracts net long in beans.?
That was 3,093 contracts more net long on a 7,601 contract (6.1%) lighter spec OI.?
Commercial soybean traders also lifted coverage, dropping 31,444 contracts (4.7%), lightening their net short 2,766 contacts to 165,817.?
In the products, the CFTC reported soymeal specs were 12,636 contracts more net long at 40,534 as of 12/14.?
Managed money firms closed longs and opened shorts in soy oil through the week, leaving their net position 14,045 contracts weaker at 44,783 contracts net long.?
That was the group’s weakest net long since 9/28.?
As for wheat, managed money firms were back to net short in Chicago wheat futures as of the latest CoT report.?
Through the week, the funds were exiting longs and adding new shorts for an 8,024 contract swing and a 7,303 contract net short at the 12/14 settle.?
In HRW, CFTC data showed spec funds were 2,411 contracts less net long to 57,164.?
Spring wheat spec traders were 13,210 contracts net long, which was a 665 stronger position on the week due to light short covering.
In this context, wheat basis was up in the Gulf and mixed in the Pacific Northwest (PNW).?
Poor rail performance, including delays and locomotive shortages, pushed up basis in the Gulf while strengthening basis in the later terms.?
Traditional slowdowns in the domestic milling industry this time of year have not occurred, keeping basis steady for HRS out of the PNW, while tight HRW specifications have caused a spike in PNW basis this week.?
Lower futures prices are strengthening demand for U.S. wheat.
Meantime, on Friday funds were net buyers in 2,500 lots of corn, 3,500 lots of soybeans and 2,000 lots of wheat.
From South America, IHS Markit reduced their 1st crop corn output estimate for Brazil.?
The 1.2 MMT revision left their figure at 28.3 MMT.?
CONAB had their official 1st crop output at 29.066 MMT.?
Also, IHS Markit sees the Brazilian soy crop reaching 145 MMT, matching their prior figure and remaining 1 MMT above the USDA official.?
Planalytics estimated the Brazilian soybean yield at 3.53 MT/HA (~ 52.5 bpa).?
That compares to CONAB’s 3.379 MT/HA (~50.24 bpa).?
In Argentina, Planalytics figures 2.92 MT/HA (~ 43.42 bpa).?
IHS Markit projects 2022 wheat area will reach 48.603m acres.?
That compares to their November forecast of 49.373m acres.?
They reduced their winter wheat area by 360k acres from their Nov figure to 34.033m acres.?
The consulting firm sees spring wheat planted area reaching 12.72m acres, down from their Nov figure of 13.03m but still a 1.3m acre boost yr/yr.?
Meantime, the Buenos Aires Grains Exchange reported Argentina’s wheat harvest at 66% complete as of 12/16.?
Their output figure was steady at 21 MMT.
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On European market, wheat finally initiated a slight rebound at the end of a week still marked by heavy bearish sessions.?
New Chinese purchases of French feed wheat (and barley) were reported on the market.?
In this context, the European Commission raised their wheat output figure from 130.4 MMT to 130.6 MMT, but left exports to non-EU members at 32 MMT.?
Meantime, the European Commission raised their corn output from 68.4 MMT to 69.4 MMT.?
Rapeseed prices for February deliveries reach new highs, despite the decline of oil and the expansion of the Omicron variant.
Indeed, the oilseed prices have largely followed the oil curve, stimulated by a weakened dollar , reassuring comments from the US Central Bank (Fed) on the economy and declining US reserves.
However, in the wake of canola and palm oil , despite a slowdown for black gold, rapeseed soared on Euronext on Friday, approaching the mark of 730 euros per tonne, a new record.
The rapeseed, like other oilseeds, is widely valued as biofuel.
From the Black Sea basin,?in Moscow, very low temperatures below -20°C are forecast during the week.?
In Krasnodar, temperatures are milder and are not causing any concern for the crops for the moment.
Meantime, according to operational data of the Federal Customs Service of the Russian Federation (excluding data on mutual trade with the EAEU member States for November & December), as of December 16, 2021,?21,4 million tons of grain crops were exported in the current 2021/2022 agricultural year, which is 22,3 % less than in the same period of the last season (27,6 million tons).?
The volume of the wheat exports for the season amounted to 18,1 million tons (21,7 % lower than the same period of the 2020/2021 season), barley – 2,3 million tons (-32,1 %), corn – 0.8 million tons (-13.3 %).
However, uncertainties on Russian export quotas are still existing as export taxes reached a record level of 94 usd/t for the period from 22 to 28 December.?
The export quota is expected to amount to 11 Mt of grains, including 8 Mt of wheat for the period from 15 February to 30 June 2022.
Meantime, according to regional agribusiness management bodies, as of December 15, 2021, the average Russian prices for the 3-class wheat were 15 252 rubles/ton (+0.2 % within a week), for the 4-class wheat – 14 387 rubles/ton (-0,5 % within a week), for the 5-class wheat – 13 881 rubles/ton (+0.1 % within a week), for feed barley – 13 379 rubles/ton (-0,1 % within a week), for food rye – 12 026 rubles/ton (+1.1 % within a week), for corn – 13 227 rubles/ton (0 % within a week).
Meanwhile, as of December 16, 2021 FOB Novorossiysk prices for the Russian 4-class wheat (protein 12,5%) were at – 335 USD/ton (-5 USD/ton within 1 week), as for barley – 295 USD/ton (-10 USD/ton within 1 week), as for corn – 272 USD/ton (-2 USD/ton within 1 week).?
On the other hand, corn prices in Ukraine are being supported by the Chinese demand, which is mainly for March/April shipments.
In deed, the Middle Empire has contracted large volumes of Ukrainian corn in recent weeks.
From the Middle Kingdom, China's November corn imports tumbled from a year earlier to their lowest in 19 months, customs data showed on Saturday, on higher cost and weak demand.
China brought in 790,000 tonnes of corn in November, down 35.7% from a year earlier.?
That was down from 1.3 million tonnes in October, according to data from the General Administration of Customs.
High shipping costs led to smaller arrivals.
The drop in imports also came as the country harvested a larger 2021/22 corn crop, seen at 270.96 million tonnes according to agriculture ministry's estimates in both October and November, up 4% from the previous season.
The ministry this month raised the estimate to 272.55 million tonnes, based on data from the national statistics bureau.?
China's wheat imports in November also fell from the previous year reaching 750,000 t, down by -7.2%, continuing a slide in October, as high international prices curbed demand.
Only barley imports were up by +37.3% in the period compared to November 2020.
November shipments were the lowest monthly figures since May 2020.?
Appetite for feed grains from the livestock sector weakened as hog margins plunged this year.?
Chinese farmers, indeed, have been losing money in most of the second half year.
However, China brought in 27.02 million tonnes of the grain in the first 11 months of the year, that is up 199% from a year ago, according to customs data.
From Australia, thee Grain Industry Association of Western Australia released a statement regarding the wheat quality concerns, reminding that the downgrades were regional and will not effect the quantity which is set to be a record.?
Weather continued to cause more issues over the weekend with reports of 10mm through the Western Districts region slowing canola and bean harvest up. Reports of 40mm at Yarrawonga over the weekend will now put a further question mark on quality for the balance of standing crops in that area.
With markets throwing up a mixed bag last week, east coast grower activity slowed as the week came to an end.?
Activity in WA continued to flow over the week with both wheat and barley being traded.
In this context, Aussie markets rounded out Friday relatively unchanged on the grower cashboards, while trade markets were a fraction stronger by $2-5/t for Jan plus delivered for domestic wheat markets along the east coast
Barley has struck an early cash bid this morning with the boards in Victoria up $4-5/t
The canola market in Western Victoria has pulled back on the bid again signalling that it needs a breather.
On the international trade scenario, Algeria’s state grains agency OAIC purchased around 690,000 to 700,000 tonnes of optional-origin milling wheat in an international tender last Tuesday.
Estimates of purchase price were still around $372 to $373 a tonne c&f for large-size panamax vessels to $376 a tonne c&f for smaller handymax vessels.
The likely origins to be supplied could include Germany, the Baltic Sea region with possibly some from Sweden, the Black Sea including Ukraine and also Argentina “but without France”.
The wheat?in Tuesday's tender was?sought for shipment in 2022 in three periods from the main supply regions including Europe: Jan. 16-31, Feb. 1-15 and Feb. 16-28.
If sourced from South America or Australia, shipment is one month earlier.
It was believed to have been bought in eight consignments of around or just over 60,000 tonnes for shipment to Iranian ports in the Middle East Gulf.
Prices were estimated at around 365 euros and 368 euros ($413.5 to $416.9).
Iran traditionally buys grains in euros rather than U.S. dollars.
Shipment of the wheat was sought in January and February, 2022.
Possible origins of the wheat purchased were thought to be Russia, Germany and the Baltic Sea region.
A small volume was also thought to have been purchased for Caspian Sea shipment.
The result of the land transport tender was not known by traders.
A new tender with the same shipment positions is expected to be issued closing on Dec. 23.
Trading houses participating on Wednesday were believed to be CHS, Cargill, Cerealcom Dolj, Viterra, Ameropa and ETG.
Other offers line up: CHS 331 usd, Cargill 335 usd, Anderson 338 usd, Agrochirnogi 341 usd, Cerealcom didn't announce.
The price was estimated at around $335 a tonne c&f, they said. It was expected to be sourced from Australia for March 2022 shipment.
An importer group in the Philippines is believed to have bought around 110,000 tonnes of animal feed wheat in an international tender for up to 220,000 tonnes which closed last Thursday.
Two consignments each of about 55,000 tonnes were bought, with the price estimated at around $325 a tonne c&f.
The tender had sought up to four 55,000 tonne consignments optionally sourced from Australia, Europe or the Black Sea region for March 15 to May 31, 2022, shipment.
30k mt sbo at $1,354.50 CFR (-113.5$) from Aston and 37k mt of sbo from local market at $1,342.10 equivalent for Feb 1-20.
The deadline for submission of price offers in the tender is Dec. 23.
The tender seeks a range of different wheat types in two consignments of 55,000 tonnes for shipment in 2022 from the U.S. Pacific Northwest coast.
One consignment is for shipment between Feb 1-15 and the second between Feb. 8-22.
Wheat types sought include northern spring, hard red winter and white wheat.
Watching this week market, we’re getting into holiday mode here, with a rush of last-minute business activities before the Christmas break.?
We start with USDA Export Inspections later in the afternoon.
Wednesday we will see the EIA report on weekly ethanol production and stocks.?
Thursday morning, we will see the weekly Export Sales report from USDA.??
USDA will also release the quarterly Hogs & Pigs report and the monthly Cattle on Feed report.?
Thursday will also mark the expiration of the January soybean complex and grain options.?
Markets will be closed on Friday for Christmas Eve, and Saturday is Christmas.
Author:?Sandro F. Puglisi
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