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last release: April 2019

Futures Markets

Mar 2019

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Source: CME - USD per tonne

Futures Prices
Prices for wheat, maize and soybeans declined 9.2, 1.9 and 1.6 percent respectively m/m, owing largely to lackluster demand for US origins. Continued foreign competition drove wheat prices to a one-year low, before rebounding on adverse US weather developments. Soybean and maize values slid early in the month as a trade pact between the US and China remained unresolved. Similar to the wheat price movement, both markets recovered on abnormally wet weather in the Midwest growing regions and reports that China had entered the US maize market for several cargoes. Rice prices performed contrarily to the other markets and rose by 4.3 percent, reflecting in part lower projected US planted acres for 2019/20. Exogenous markets were stronger: US Dollar index and the USD against the Euro rose m/m. West Texas Intermediate crude oil prices - which normally react inversely to USD strength - continued on their rising trajectory, trading as high as USD 60 per barrel, a 33 percent increase since the end of 2018. All four agricultural commodities turned lower y/y, by 4.5, 3.4, 13.8 and 12.6 percent, respectively, for wheat, maize, soybeans and rice, reflecting record or near record global stocks. Following the release of the USDA stocks and planting intentions reports at the end of March, prices for all four commodities fell by varying degrees with maize declining the most by about 5 percent.

Volumes and volatility
Trade volumes for wheat, maize and soybeans fell by about one-third for all three commodities m/m and were lower 13, 15 and 34 percent respectively y/y. Implied volatility and historical volatility edged up m/m for wheat and maize while declining for soybeans. Implied volatility y/y was negligibly higher for wheat and maize, but lower for soybeans, while historical volatility y/y declined for wheat and soybeans and rose for maize.

Basis levels and transport
Domestic basis levels rose marginally m/m for maize and soybeans, but overall indicated ample supplies in the interior for the two commodities. In Illinois, bids to local elevators were quoted minus USD 10 per tonne for maize and minus USD 20 per tonne for soybeans, each under the respective May futures prices. In Iowa, the bids wereslightly higher m/m at minus USD 12 for maize and minus USD 32 for soybeans (under the respective May futures). In soft red wheat, bids for delivery to northern flour mills were quoted at slightly below May futures prices. Gulf export delivery basis levels for maize, soybeans and soft red wheat were all firmer m/m, quoted as high as USD 23, USD 12, and USD 33 (per tonne premium over respective May futures). Multiple lock closures were reported along the Ohio and Mississippi Rivers due to high water as well as pervasive flooding throughout the basin of the Missouri River – which lacks a lock and dam system. The extreme high water, usually occurring in April or May, was accelerated this year by record snowfall in the upper Midwest. Barge freight was firm at about USD 24 per tonne, but lower than late February when floating ice impeded traffic. The US export picture was mixed: cumulative exports were 4 percent lower for wheat and 30 percent lower for soybeans, while 34 percent higher for maize for crop year 2018/19.

Forward curves
Forward curves remained unchanged m/m, persisting in contango configurations (upward sloping). Updates on supply and demand balances from the USDA after the US government resumed normal operations following its 35- day shutdown failed to provide any market surprises.

Investment flows
Managed money established large shorts in wheat and soybeans and, in the case of maize, set a record net short of over 283 000 contracts – the equivalent of 36 million tonnes by mid-month. These positions were all moderately reduced prior to the USDA report on stocks and planting intentions. Commercials, which reportedly suffered a downturn in trading revenue due to the US- China trade impasse, held only modest short positions in wheat and maize while positions were even in soybeans. Swaps dealers and Other Reportables (large proprietary traders or speculators) held the dominant long positions in the three commodities.