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last release: October 2018

Futures Markets

Sep 2018
Average

% Change

M/M

Y/Y

Wheat

185

-6.4

+ 15.3

Maize

139

-1.7

 +1.3

Rice

227

-4.3

-17.3

Soybeans

306

-3.2

-13.4

Source: CME - USD per tonne

Futures Prices
Prices for wheat, maize, soybeans and rice declined m/m as US crops burgeoned under favourable weather conditions while US and China remained at odds over trade issues, particularly with regard to soybeans. The USDA raised global supplies for all four commodities m/m even as dry weather negatively impacted crops in Canada, Australia and northern Europe. The largest m/m price decline occurred in wheat, as speculation dissipated over whether the Russian Federation would impose export restrictions. Also, recent rains in the Black Sea region aided in winter wheat sowing, further dampening market sentiment. Maize prices seemed to find some support from rising crude oil values, while soybeans tumbled to a ten-year low and reached a record discount to Brazilian values of USD 90 per tonne – roughly equal to the 25 percent import tariff set by China. A weaker USD and firm energy prices, deemed supportive of commodity prices, may have kept prices from declining further. Wheat, maize, soybeans and rice were lower m/m by 6.4, 1.7, 4.3 and 3.2 percent respectively. On a y/y basis, wheat was higher by about 15.3 percent, maize was 1.3, while soybeans and rice were lower by 17.3 and 13.4 percent respectively.

Volumes and volatility
Trade volumes for wheat, maize and soybeans declined m/m, reflecting the typical pre-harvest pattern of reduced trading. Implied volatility and historical volatility were little changed for all three commodities m/m, maintaining levels in the medium low range, mostly above last year’s levels.

Basis levels and transport
Domestic basis levels for maize and soybeans continued below seasonal norms m/m reflecting ample year-end carry-out stocks and the commencement of large-scale harvests. In Illinois, the interior bids to local elevators were quoted at minus USD 21 per tonne for maize and minus USD 25 for soybeans, both under the respective new-crop December and November futures prices. In Iowa, the bids were similarly weak at minus USD 25 for maize and minus USD 38 for soybeans (under the respective futures). Gulf export delivery basis levels were weak with maize quoted at USD 12 per tonne while soybeans were quoted at about USD 2 per tonne below the November futures, an aberrantly low basis level for gulf delivery. Soft red wheat values delivered into the northern mills and gulf were weak - quoted at about minus USD 4 per tonne and plus USD 14 per tonne, respectively (both with respect to December futures). Barge freight (lower Illinois River quotations) rose moderately m/m to around USD 26 per tonne in anticipation of harvest season, trading about 23 percent higher than the three year average. In the export market, outstanding commitments in maize exhibited a robust start for 2018/19 (crop year began September 1), surpassing last year’s level by 50 percent and indicating another record year for the feed grain. Soybeans, however, showed a 6 percent slump in commitments, as expected in the near absence of Chinese purchases, partially recouped by other buyers including South American competitors. Exports and outstanding commitments in wheat, the crop year for which began on 1 June, continued to lag behind last year by about 20 percent.

Forward curves
Forward curves exhibited some relaxation in wheat, maize and soybeans m/m, reflecting large looming harvests and low cash basis levels. The wheat curve, which displayed an inversion between May and July 2019 contracts during August returned to a carry configuration as talk over Russian Federation export issues faded. The maize curve, namely the y/y spread between December 18 and December 19 widened a few USD per tonne from USD 10 to USD 12 - a modest upward slope (contango) possibly reflecting a balance between supply and demand. The comparable soybean spread between November 2018 and November 2019 also widened m/m, from USD 22 to USD 24 per tonne, which represented a record large contango for that y/y spread - in keeping with a record large ending stocks figure projected for 2019.

Investment flows
Managed money reversed its net long position in wheat to establish a small net short. It added to its net short positions in maize and soybeans but at lower levels than ones recorded in previous years. Commercials remained short in anticipation of cash purchases to offset their harvest-time hedges. Swaps dealers as well as the category of “other reportables” (large proprietary speculators) were on the net long side of the market. Spread totals for the three commodities, rose slightly m/m and were about twice as high as last year. Open interest was higher y/y but not at the record levels recorded this past July.