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last release: Feb 2018

Futures Markets

Jan2018
Average*

% Change

M/M

Y/Y

Wheat

159

+5.0

+1.8

Maize

139

+2.2

 -2.6

Rice

263

-0.2

+23.4

Soybeans

356

-0.4

  -6.3

Source: CME - *USD per tonne

Futures prices
Prices for wheat, maize and soybeans were mixed m/m, with wheat and maize gaining about 5 percent and 2 percent respectively, while soybeans ended up almost unchanged, after reversing their downward trend exhibited in December. Signs of a growing global economy seemed to have offset some of the negative USDA January World Agricultural Supply and Demand Estimates (WASDE) report which decreased US exports and raised world estimates for ending stocks for all three commodities. Weather concerns in Argentina and rising margins in the US soybean crushing sector (calculated by the price difference between soybeans and the two end products of soymeal and soyoil) added support to maize and soybean price levels. Dryness in the US Plain states and deteriorating crop conditions caused wheat prices to touch four month highs. Exogenous markets, which had been range-bound for several years, saw a fall in the US Dollar Index to a three year low, and a rise in copper and crude oil – leading indicators of industrial production - to three year highs, trends typically associated with stronger agricultural markets. On a y/y basis wheat prices were 1.8 percent higher while maize and soybean prices were 2.6 and 6.3 percent lower, respectively. Rice prices, while negligibly lower m/m were still trading about 23 percent higher y/y, mostly reflecting the US reduced supply crop season.

Volumes and volatility
Trade volumes rose by over 40 percent in wheat and maize m/m, reflecting seasonal patterns for the two commodities while falling in soybeans by 39 percent. Wheat and maize volumes were modestly lower y/y while soybean volumes dropped 15 percent, approaching three-year lows. Implied volatility declined for the fourth successive month for all three commodities, hovering close to all-time low levels. Historical volatility fell for maize and soybeans, rose for wheat, but was lower y/y for all 3 commodities.

Basis levels and transport
Domestic basis levels for maize and soybeans appeared steady to higher as post-harvest supplies were consumed domestically or exported. In Illinois, the interior bids to local elevators were quoted minus USD 8.5 (per tonne) for maize and minus USD 12.5 for soybeans (both under the respective March futures prices), indicating an improvement of about USD 1. In Iowa the bids were similarly steady to higher at minus USD 14.5 for maize and minus USD 27 for soybeans (under the respective March futures). Domestic soft red wheat values were steady at about minus USD 4 below the March futures price for delivery to the northern mills although some bids reflected par with March futures. Basis levels for Gulf export delivery for maize and soybeans crept higher to USD 17 and USD 15 per tonne respectively. Soft red wheat values for Gulf delivery softened slightly to about USD 19 per tonne. Barge freight increased to USD 20 per tonne, rising above the three year average rate for second successive month (lower Illinois River quotations). Exports and export commitments continued to lag behind last year’s record pace for all three commodities at 17 percent lower for both categories.

Forward curves
Forward curves for wheat, maize and soybeans continued in their same configurations of seasonally wide carries, typical for well supplied markets. The most volatile spread among the three commodities – the old crop/new crop soybean spread (July 2018 minus November 2018) declined to less than USD 2 per tonne inverse. Deliveries against the January soybean futures were modest.

Investment flows
Managed money began the new year with net short positions in wheat, maize and soybeans, although at levels below the record setting short positions (recorded for maize) in mid-November. Commercials established small long positions in wheat and soybeans while maintaining a sizable net short position in maize. Swaps dealers, which offer retail index products tracking the values of underlying futures contracts, maintained their net long positions, now for the twelfth year in a row (since the beginning of the publication of CFTC’s disaggregated Commitment of Traders Report).