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last release: Sep 2017

Futures Markets

Aug 2017

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Source: CME - *USD per tonne

Futures prices: Prices for wheat, maize, soybeans fell sharply throughout the month, continuing their downward trend since early July when prices for all three commodities reached one-year highs. Unusually cool weather during August added crop yield potential to soybeans and maize. Burgeoning global wheat production, especially in the Black Sea region, caused a retreat in wheat values even as US production forecast was lowered m/m. Conversely, rice prices continued their four-month surge. Reports of lower yields and harvested acreage have caused rice prices to increase by over 35 percent since reaching a low during May 2017. Prices for wheat, maize and soybean were lower by approximately 14, 6 and 5 percent respectively m/m, while rice prices were 3 percent higher. Despite the swift price declines, wheat and maize values remained 6 and 10 percent higher respectively y/y, possibly supported by a weakening USD, which has declined about 10 percent since the beginning of the calendar year, as calculated by the USD Index. Rice prices were a lofty 26 percent higher y/y while soybean prices were about 7 percent lower.      

Volumes and volatility: Trade volumes were unchanged for wheat and moderately lower for maize and soybeans m/m. Volumes for all three commodities were higher y/y. Historical volatility, which had soared during July - reaching above the 40 level for wheat - declined to around the 20 level for all three commodities by end month. Implied Volatility reflected a similar up and down pattern for wheat and maize but was mostly steady for soybeans.

Basis levels and transport: Basis levels for maize and soybeans remained soft in the interior as they have for the whole crop year. In Illinois, the interior bids to local elevators were minus USD 10 and minus USD 7 per tonne under the September futures prices for maize and soybeans respectively. In Iowa, the bids for maize were about unchanged minus USD 17 and bids for soybeans firmed to minus USD 19 (both under the respective September futures), but were unusually low for the pre-harvest season. Conversely, domestic soft red wheat values firmed with some quotes attaining par with the September futures prices for delivery into northern mills. Gulf export quotations were weak for maize at around USD 9, and firm for soybeans and soft red wheat at around USD 21 and USD 17 all over respective September futures. Export clearances for maize and soybeans slowed from their previous pace, to end at 23 and 17 percent respectively higher at end of their crop years (September 1). Export clearances for wheat, which began its crop year on June 1, were 17 percent higher than same period previous year. Barge freight firmed to USD 17 per tonne (Illinois River to Gulf quotation) following months of cheap transport rates. Export shipping from the port of New Orleans, Louisiana remained unaffected by hurricane Harvey, which shuttered operations at Galveston, Texas, primarily a wheat export point.

Forward curves: Forward curves for wheat, maize and soybean exhibited a relaxation of their front end as crop projections tended to rise and prices fell. Soybeans reflected the least amount of one year forward carry at about USD 7 between November 2017 and November 2018 compared to the maize one year forward carry of USD 16 and wheat forward carry of USD 29 (calculated on the December 2017 and 2018 maize and wheat contracts). However, the lack of deliveries against the September soybean contract (one contract) and the September wheat contract (zero contracts) could flatten the slopes of those two price curves. Deliveries against the maize September futures were relatively heavy at 844 contracts, reflecting the weak domestic and export bases.   

Investment flows: Managed money switched strategies again for the third time in five months establishing net short positions for wheat, maize and soybeans as the prices retreated to near term lows. Managed money has again aligned itself with commercials which have remained on the short side of the market in wheat and maize all year while alternating in soybeans between long and short. Managed money net sold 85 000 wheat contracts, 108 000 maize contracts and 61 000 soybeans contracts m/m to turn from net long to net short. Their timing is interesting since grain market prices often reach their lows around the early September period.