Markets down sharply on the week as supportive USDA data was quickly overlooked as attention returned to politics/weather. USDA headlines:

• ·         Russian wheat crop est. reduced by 3.5mmt to 68.5mmt, below market expectations (85mmt this season). Decline is believed to be based on a reduction in area due to poor spring planting weather. Leaves potential for deeper cuts if yields deemed to be below average.
• ·         Ukrainian wheat production left unchanged at 26.5mmt in spite of the recent drought.
• ·         US 17/18 corn beginning stocks reduced by 2.04mmt to 53.4mmt due to an increased export forecast. Ending stocks were reduced to 40.07mmt (trade est. 42.1mmt).
• ·         Global 2018 corn production placed at 1052.42mmt, down from 1056.07mmt previously - though 17.65mmt higher than this season.
• ·         2018 World wheat production reduced by 3.07mmt to 744.69mmt.
• ·         Russian FOB prices move $3.50/t lower on the week, with July trade reported at $200.50 in spite of all the ongoing new crop production concerns. Likelihood of an earlier harvest may have contributed to the sell-off.
• ·         US/China trade war dominates the headlines as both nations exchange punitive tariffs. US soybeans/corn are the main Ag products affected, with both commodities selling-off as a consequence.
• ·         Strategie Grains reduce EU wheat crop estimate by 900k to 139.9mmt. Wheat exports to 12th June placed at 19.15mmt (23.3mmt last season).
• ·         US funds continue to liquidate positions. Now estimated net short 36.6k wheat, long 29.5k (corn) short 49.4k (soybeans).
• ·         Euro weakens against the dollar following the ECB’s announcement on monetary policy plans midweek. Sterling also firms relative to the Euro, pressurising London wheat further.

WEATHER/CROP DEVELOPMENT:

• ·         Southern Russia and Ukraine continue to look hot and dry for the next 2 weeks. If these forecasts materialise, that will amount to 3 months without any meaningful rain for these areas. Russian spring wheat areas further north continue to suffer from wet conditions.
• ·         US winter wheat ratings improve 1% to 35% g/e. 91% estimated to be headed versus the 5 year average of 90%. Harvest is also estimated to be 14% complete, ahead of the 10% 5 year average. US Corn Belt receives hot, dry conditions over the weekend and into this week – though temps are expected to moderate, whilst some rains are expected to follow. General perception remains that Corn-Belt weather looks unthreatening.
• ·         Australia’s ABARES suggest above normal temps and below normal moisture remain a problem. 7-10 day models suggest little respite. Mid-month Climate Outlook suggest Eastern crop areas will remain hot and dry, whilst western areas will be close to normal. Saskatchewan spring wheat crop ratings placed at 83% g/e. Recent rains have helped improve conditions with only 18% believed to be short/very short.
• ·         Indian monsoon remains closely monitored, with some trade concerns that rainfall levels may be significantly lower than normal.

BOTTOM LINE:

• ·         Wheat markets continue to sell-off sharply despite the release of supportive USDA data and ongoing dryness in Southern Russia/Ukraine.
• ·         US/China trade war escalation undoubtedly contributed to weakness through the week - that combined with easing Black Sea wheat values and generally benign US weather for both wheat harvest and corn crop development.
• ·         Markets have removed considerable risk premium, whilst US funds have also liquidated their long positions. Given it is still June, trade is conscious crops are far from guaranteed at this stage. In terms of Russia/Ukraine, the Black Sea Futs/FOB trade may need to lead the way to further gains in world wheat markets, with US trade currently the world’s most expensive.
• ·         Fundamentally, US/Black Sea weather should occupy much of the focus. Add in both currency and geopolitical uncertainty and heightened volatility would seem likely over the coming weeks.