The Commodities Feed: Bearish WASDE surprises grain market

US drilling and inventories: The EIA released its latest drilling productivity report yesterday, in which they estimate that US shale production will increase by 85Mbbls/d MoM to average 8.77MMbbls/d in September. The increase is expected to be driven by the Permian, where output is estimated to increase 75Mbbls/d MoM. Although in Eagle Ford production is estimated to fall 6Mbbls/d MoM. Meanwhile, the number of drilled but uncompleted wells (DUCs) continues to trend lower, falling by 100 over the month to total 8,108 at the end of July. This is now the fifth consecutive month that we have seen a decline in DUC inventory, as drilling activity has slowed.

Turning to oil inventories, the API is scheduled to release its weekly inventory report later today, and market expectations are that US crude oil inventories declined by 2.29MMbbls over the week. Although the narrowing in the WTI/Brent could mean another week of low exports, much like EIA data showed last week.

Chinese aluminium: Some aluminium smelting plants in Shandong province in China were reported to be facing shipment and other operational issues due to floods in the region. China Hongqiao Group, the 2nd largest aluminium smelter in the country said that the floods have had a ‘very small’ impact on operations until now, and some of the electrolysis units were closed as a precaution. SHFE aluminium prices have strengthened by around 2% in the morning session on supply risks over the coming days. Earlier, exchange data showed that aluminium inventory at SHFE warehouses fell to a two-year low of 391.5kt as on 9 August, with around 281kt of stocks being withdrawn since the end of 2018.

Indonesian Nickel: The uncertainty over the Indonesian nickel ore export ban increased further this week after the country’s Coordinating Minister for Maritime Affairs said that there is no problem in expediting the ban on ore export. Nickel prices have rallied around 35% since bottoming in June on fears that Indonesia might bring forward the export ban to 2020/2021, rather than the planned 2022 deadline. Indonesia is a major supplier of nickel ore and NPI for Chinese consumers and any restrictions are likely to tighten the nickel market.

WASDE report: The latest WASDE report was a surprise for the market, being much more bearish than the market was expecting. The USDA increased its US corn output estimate for 2019/20 from a July estimate of 13,875m bushels to 13,901m bushels. This was much higher than market expectations of around 13,146m bushels. While the USDA lowered its corn acreage estimate, this decline was offset by an increase in their yield estimates. The USDA estimates corn acreage at 90m acres, well above market expectations of around 87.7m acres. For soybean, acreage was revised down from 80m acres to 76.3m acres whilst yields were left unchanged at 48.5bu/acre, resulting in production being revised down from 3,845m bushels to 3,680m bushels- the market was expecting a soybean crop estimate of around 3,786m bushels.

Globally, the USDA increased its estimate for corn ending stocks from 298.9mt to 307.7mt on softer demand, and better supply from Ukraine- the market was expecting global stocks of around 292mt, according to a Bloomberg survey, which was on the back of expectations of a revision lower in US output. On the other hand, the USDA revised lower soybean and wheat ending stocks estimates from 104.5mt to 101.7mt and 286.5mt to 285.4mt respectively.