Apr 10, 2017 - Weekly Commodity - Grains decline on strong USD ahead of WASDE, Oil bulls revival on Syrian attacks

The strong dollar continued to be a moving factor last week but the market also digested the Prospective plantings report and the US strike in Syria helped the oil bulls to regain power. This week we will be watching closely the April USDA Wasde report on Tuesday where a slightly higher ending stocks of grains are expected. Later the API and EIA crude oil reports could give the oil traders some kind of direction for the coming weeks.

Oil

The last week we started on a mixed tone as while API oil stocks showed a surprise decline of 1.83M barrels the EIA crude inventories increased by 1.58M Barrels. The market got a boost on Thursday after US attacked a Syrian military airbase which helped the WTI Crude close the week above 52 level. Overall positive bias was supported by Canadian news too, where 2 oil producers had to cut production due to plant fires. The Baker Hughes US Oil Rig Count continued to grow however and this calmed the mood on the market at the end of the week.

Grains

The market is waiting for the WASDE report published on Tuesday ET 12:00PM and market participants expect another bearish report in terms of increase in ending stocks of Corn, Wheat and Soybeans too. To the bearish view also adds the concerns regarding US-Mexico and US-China trade relationship. Mexico aims to decrease dependence on US Grain by considering buying some tariff-free corn from Brazil and Argentina. Heavy shorting of corn and wheat however keep open a possibility for a major short squeeze. Especially wheat could be in focus as concerns regarding insufficient moisture in US and Europe are rising. US Soybean exports to China are on the other hand beating government forecast however there are fears that many of the export order could be cancelled. The soybean positioning of hedge funds is much more balanced than corn and wheat and with all the rising planting area, huge stocks and fear regarding cancelled exports creates a room for further decline. While Chinese grain imports are rising, it’s not the best time for US farmers ahead of harvest and favour the South American producers instead.

Sugar

As I wrote about sugar last week, the situation is not changed much. Despite the Indian government has slashed import duty on raw sugar to 0% the reality is that this is only for a fraction of the amount needed to be imported, indicated by the Indian Sugar Mills Association. We are at the beginning of the cane crash season in Brazil with good weather forecast and mills favouring sugar ahead of ethanol. Therefore despite the expected lower cane crushing the sugar production will most probably rise compared to last year which will maintain pressure on the sugar market.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

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