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last release: July 2018

Futures Markets

June 2018
Average*

% Change

M/M

Y/Y

Wheat

184

-3.1

+10.4

Maize

144

-8.4

-2.0

Rice

263

-2.7

+5.8

Soybeans

340

-9.3

+0.1

Source: CME - *USD per tonne

Futures Prices
Prices for wheat, maize, soybeans and rice fell sharply during June, as maize and soybean crops emerged in top-rated condition and trade tensions escalated between the US and its major trading partners. Soybean prices plunged the most at 16 percent, losing USD 60 per tonne of their value, as China switched its imports from US to Brazil. US exports to China lagged 5 million tonnes behind last year’s pace as of mid-June, although Brazil’s port congestion and high prices persuaded other buyers to increase purchases of US soybeans, however marginally. Wheat and maize experienced rapid but smaller percentage price drops, both commodities perceived as less vulnerable to tariff and quota restrictions. Traders seemed to discount potential weather issues arising in the remaining four months of the growing season as well as a USDA projected drawdown in wheat, maize and soybean stocks for 2018/19. Exogenous markets seemed to lose their impact on agricultural markets this month as West Texas Intermediate crude oil remained at a three-year high. Futures prices for wheat, maize, soybeans and rice were 3, 8, 3 and 9 percent lower m/m, respectively. Except for maize, which was 1 percent lower, futures prices of wheat, soybeans and rice were 10, 2 and 6 percent higher y/y.

Volumes and volatility
Futures trade volumes for wheat, maize and soybeans soared m/m by 39, 48 and 59 percent respectively amid the general uncertainty regarding trade issues. Historical volatility and implied volatility were higher for all three commodities m/m and y/y, possibly indicating a departure from the ultra-low volatility markets of the past three years.

Basis levels and transport
Domestic basis levels for maize and soybeans rose m/m as futures prices dropped. In Illinois, the interior bids to local elevators were USD 3 per tonne higher, quoted minus USD 8 per tonne for maize and minus USD 11 for soybeans, both under the respective July futures prices. In Iowa, the bids were similarly firmer by a few USD per tonne at minus USD 14 for maize and minus USD 23 for soybeans (under the respective July futures). Gulf export delivery basis levels were lower m/m, with maize quoted at USD 22 while soybeans were about 19 USD (both on a per tonne basis over respective July futures). As China shunned US soybeans in favor of Brazil, free on board (FOB) vessel premiums jumped to about a USD 50 premium versus FOB US gulf for forward delivery into October/November 2018 harvest season. Soft red wheat values delivered into the northern mills were very firm - quoted as high as USD 8 over the July futures price but weaker m/m for gulf delivery–quoted USD 22 over July futures - as exports barely materialized during June. Barge freight declined precipitously m/m from USD 33 to 22 per tonne as water levels receded, even as southbound grain barge shipments were at a one year high. In the export market, cumulative shipments continued to lag for maize and soybeans at 92 and 91 percent respectively of last year. Wheat, the crop year for which began on 1 June, was off to a slow start as exports were less than half of last year.

Forward curves
Forward curves appeared similar for wheat and maize m/m reflecting ample supply markets. However the nearby wheat spread between July and September tightened m/m from USD 6 per tonne carry to USD 3 in a response to high spot basis levels paid by domestic wheat millers in close proximity to the delivery locations. Soybeans experienced a slump in the front end of the curve exhibiting a USD 8 carry between July and November 2018, which during April had displayed a USD 6.6 inverse. US soybeans bore the brunt of the trade dispute between the US and China, which is the largest global soybean consumer.

Investment flows
Managed money, although active during the month, reduced its overall position taking. It turned its net long positions in wheat, maize and soybeans into negligible net short positions each comprising about 3 percent or less of open interest totals. Commercials remained heavily short while swaps dealers persisted with their long strategy for the twelfth year. Changes in trade strategies appeared to be emerging among all trader categories as spread totals increased as well as options positioning. Open interest totals reached record levels with commercials showing the greatest increase in trade participation. Reportedly, the number of commodity hedge funds declined as poor returns forced the closure of several companies.