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last release: July 2019

Futures Markets

June 2019

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Source: CME - USD per tonne

Futures Prices
Prices for wheat, maize, soybeans and rice extended their rallies m/m, as recurrent storm-fronts delayed large swaths of maize and soybean planting by record percentage points. Maize prices hit a five-year high as regional planting windows closed, generating estimates between 5 and 8 million acres that could qualify for the USDA Prevented Planting insurance schemes or result in failed acres. Soybean prices, which slumped to eleven year lows during mid-May as a result of the still unresolved trade war and the spread in East Asia of African Swine Fever, staged a recovery to April levels. Wheat prices also rose in sympathy with maize and soybean values although planting progress for spring wheat in the northern region was near normal and winter wheat yields reported from the harvest in the southern plains were above expectations. Chicago-traded soft red wheat climbed to a record premium of USD 24 per tonne over the Kansas City-traded hard red wheat, upending its normal discount status. Analysts cited a pick-up in export demand for the soft red wheat variety while fierce competition from the Black Sea region weighed on hard red wheat prices.

From July forward, attention will focus on summer weather patterns and USDA assessments of crop conditions which so far reflect a below average start to maize and soybean crop emergence. In exogenous markets, the USD index slumped from its highs in May as did the price of West Texas Intermediate crude oil, to no seeming effect on agricultural prices. On average, prices rose m/m about 14 percent for wheat and maize, 7 percent for soybeans and 4.3 percent for rice. The y/y comparison was mixed: maize showed the largest percentage price gain of 19.3 percent followed by wheat at 4.8 percent while soybeans and rice registered y/y losses of 3.9 and 3.7 percent respectively. 

On 28 June, the USDA released its acreage survey for wheat, maize, and soybeans (conducted during the first two weeks of June). It estimated maize acres considerably higher (about 5.0 million acres) and soybean acres considerably lower (about 4.3 million acres) than the average trade estimates. The survey was based on both planted acres and intended acres and will be revised to reflect actual planted in August.

Volumes and volatility
Trade volumes rose for wheat and soybeans m/m and reached a record high for maize. With the exception of maize, volumes were lower y/y for wheat and soybeans. Implied volatility and historical volatility were higher for all three commodities both m/m and y/y with maize reaching multi-year highs for both measures.

Basis levels and transport
Domestic basis levels firmed m/m for maize and soybeans, as producers struggled with planting delays and potential crop shortfalls. In Illinois, while some maize processors were bidding plus USD 8 for spot delivery, average quotes to local elevators were minus USD 4 per tonne for maize, and minus USD 11 per tonne for soybeans, each under the respective July futures prices. In Iowa, maize and soybean bids rose slightly m/m to minus USD 10 and minus USD 28 respectively (under the respective July futures). In soft red wheat, bids for delivery to northern flour mills were considerably higher m/m at premium levels to July futures. Maize and soybeans delivered to Gulf were quoted as high as at USD 32 and USD 28, respectively, while wheat quotes ranged from USD 26 and USD 32, (per tonne premium over respective July futures).

The US Coast Guard opened the St. Louis harbor for navigation in late June after months of flooding on the Mid-Mississippi River. Barge freight for the Lower Illinois River was USD 26 per tonne, 45 percent higher than the three-year-average while barge shipments increasingly lagged behind at 64 percent of last year’s tonnage. The USDA reported total exports for wheat, which ended its crop year 31 May, were 8 percent higher than last year. For maize and soybeans, which have crop years extending until 31 August, exports were 102 and 76 percent of last year respectively. High US maize prices relative to South American values prompted feeders on the US Atlantic Coast to book ten cargoes or more of southern hemisphere maize for fall arrival.

Forward curves
Forward curves displayed much the same volatility as prices during June as traders grappled with crop projections, particularly for maize and soybeans. Although the price curves remained in contango (upward sloping) for the nearby months, they gyrated considerably for the harvest to end-year crop spreads. The December 2019 - December 2020 spread for maize – which flipped from contango to backwardation (downward sloping) in May further increased its downward slope m/m from USD 9 to as much as USD 18 per tonne. Both soybeans and wheat experienced a narrowing of one year spreads by several USD per tonne but unlike maize, remained in contango as their balance sheets remained fundamentally in surplus.

Investment flows
Managed money extended its buying strategy for all three commodities that it began in mid-May when persistent storm-fronts suddenly threatened production levels in the US growing regions. In maize, and to a lesser extent wheat, it covered its remaining net short positions to establish moderate net long positions. In soybeans it reduced its net short position by about 40 percent m/m. Commercial hedgers including producers, continued to sell into the higher price levels, establishing a large net short in maize and moderate net shorts in wheat and soybeans.