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last release: 7 March 2024

Futures Markets

Futures prices
Soybean and maize prices have dipped below November 2020 levels, driven by below average US exports and sluggish Chinese import activity during the Lunar New Year festivities. Despite a slight uptick in Brazilian soybean cash markets, the dominance of the Brazilian crops on export markets is expected to persist, exerting further downward pressure on US soybean futures. Wheat markets on CME and Euronext also trended down, amid heightened competition with Black Sea origins, particularly Russian exports, which are reaching record monthly volumes while prices hit their lowest since September 2020. Anticipated ample carryover stocks in Ukraine, Russian Federation, and EU, alongside favourable early production prospects in the Russian Federation, weigh on futures contracts corresponding to next harvest prices.

Volume & volatility
Historical and implied volatilities remained contained in February, close to 10-year average levels on CME maize, soybean and wheat contracts. Low volatility levels are typical at the beginning of the year on maize, soybean, and wheat contracts. However, potential outbursts of grain price variance call for monitoring, especially for maize, the volatility of which tends to increase from March to July as potential adverse weather impacts on crops get gradually more significant at later stages of crop development.

Trading activity rebounded on CME maize and wheat compared to last month but declined in CME soybean. Euronext wheat experienced a significant jump in activity, reaching record high traded volume in February, increasing market share against CME wheat. With EU wheat prices nearing parity with Russian counterparts, market participants reallocate their portfolios more frequently to capitalize on opportunities for Russian/European arbitrage, resulting in increased trading volumes as they purchase cheaper wheat and sell it where it commands a higher price.

Forward curves
CME soybean and maize still maintain a carry configuration, reflecting increased availability in the US due to limited export performance, while global inventories are expected to rise next season. This market structure rewards storage through higher prices for later month contracts.

In contrast, CME wheat has reverted to a backwardation configuration for the first time since April 2022. While in April 2022, the shift to backwardation indicated an anticipation of a significant shortfall in wheat availability due to adjustments in trade routes caused by the start of the war in Ukraine, the recent shift in February 2024 appears to be more technical in nature as fundamentals in wheat indicate no sign of shortage. As the March contract approached expiration, managed money needed to roll over large short positions, resulting in unwinding (and thus buying) of the March contract, pushing its price up, while simultaneously shorting the May contract, thereby pulling its price down.

Investment flows
Money managers have continued to accumulate their net short positions in agricultural derivatives, with funds displaying their largest short position in 20 years across CME maize, soybean, and wheat, according to the latest data from the US Commodity Futures Trading Commission.

The persistent and prolonged downward trend has attracted short sellers. However, it is important to note that a significant portion of money manager positioning is based on trend following. Therefore, a swift reversal to a net long position could occur if there is a shift in price trends upward, particularly if fundamental factors are affected.