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last release: April 2018

Futures Markets

March 2018
Average*

% Change

M/M

Y/Y

Wheat

176

+4.2

+11.1

Maize

149

+3.8

 +4.6

Rice

271

+0.7

+27.6

Soybeans

382

+2.9

  +4.3

Source: CME - *USD per tonne

Futures Prices
Prices for wheat, maize and soybeans posted gains for the second successive month, increasing m/m by 4.2, 3.8 and 2.9 percent respectively, even though values trended lower after the first week of the month. Poor US winter wheat crop ratings together with suboptimal sowing conditions in the northern spring wheat belt lifted wheat prices at one point to a seven month high. A prolonged drought in Argentina’s growing regions tended to support maize and soybean values as analysts cut the country’s maize and soybean crops by several million tonnes. On the trade front, uncertainty surrounding potential tariff and quota measures appeared to dissipate as China’s official policy on US soybean imports remained unaffected, at least in the near term.* Market watchers instead shifted their focus to US planting weather, which was forecast to be rainy with mixtures of snow through the middle of April. In exogenous markets, a continued weak USD and firm crude oil and gold prices, lent support to agricultural markets. The USDA planting intentions and quarterly stocks report published at month end surprised analysts by projecting lower maize and soybean acres and higher wheat acres than trade estimates, causing prices for maize and soybeans to advance between 2 and 3 percent. On a y/y basis, wheat, maize and soybeans were all higher at 11.1, 4.6, and 4.3 percent, respectively. Rice prices were steady m/m and remained higher y/y by 27.6.

Volumes and volatility
Trade volumes for all three commodities declined m/m by 24 to 32 percent, despite buoyant prices which normally signify rising transaction levels. However, volumes were about 50 percent higher y/y. Historical volatility and implied volatility were somewhat higher for all three commodities m/m. Compared to a year ago maize and soybeans declined and wheat rose in both volatility measures. 

Basis levels and transport
Domestic basis levels for maize and soybeans declined m/m as early month rises in futures prices encouraged producer marketing prior to planting season. In Illinois, the interior bids to local elevators dropped between 4 USD and 5 USD (per tonne) and were quoted minus USD 13 for maize and minus USD 17 for soybeans, both under the respective May futures prices.  In Iowa, the bids were similarly weak at minus USD 18 for maize and minus USD 31 for soybeans (under the respective May futures). Gulf export delivery basis levels were also lower for the two commodities, with maize - quoted at USD 17 and soybeans at USD 12 per tonne. Conversely, domestic soft red wheat values were steady while delivered gulf prices were higher at around USD 27 per tonne over the May futures.  Barge freight soared to USD 29 in the second week of March as flooding disrupted traffic during the spring season opening for upper Mississippi traffic. Barge freight since the end of 2017 has sustained a level above the three year average freight rate (lower Illinois River quotations). The export market showed signs of a pick-up from US, with maize and soybean export commitments (unshipped balances), surpassing last year’s levels for the same time period, although cumulative shipments lagged. In wheat, both cumulative and unshipped exports continued to lose ground to other origin sales and in fact, US has shifted to second place after the Russian Federation as the world’s largest wheat supplier.

Forward curves
Forward curves for wheat and maize barely changed m/m even as prices moved to multi-month highs. Soybean curves, which exhibited a dramatic inversion in the old crop/new crop soybean spread (July 2018 minus November 2018) from ‘even’ (i.e. both contract months reflecting the same price) to USD 16 during February, dropped back to USD 4 by end month. Traders weighed the losses in Argentina against a bumper crop in Brazil, where large Chinese buying as evidenced by record high soybean export premiums, might be displacing US origin exports.

Investment flows
Managed money made extensive changes to its maize positioning m/m, mirroring the up and down price movements of the commodity. As prices attained multi-month highs mid-month, it added approximately 150 000 contracts (19 million tonnes) to its net long position, but liquidated about 100 000 (13.5 million tonnes) of those purchases during a market downtrend the week before the USDA Planting Intentions report. The report, which surprised analysts by projecting lower maize planted acres than expected for 2018, in turn triggered an upward buying spree. Conversely, managed money exhibited moderate active trading in wheat and soybeans, maintaining its net short positions in wheat and net long soybeans m/m. Commercials remained net shorts for all three commodities.