last release: March 2017
Source: CME - USD per tonne
- Future prices: Prices for wheat, maize and soybeans edged higher m/m, despite little fresh supportive news. Wheat – up about 3 percent – continued its three month rally boosted in January by reports of reduced sowing, while maize and soybeans followed suit to a lesser degree. Stabilization of Argentine crop conditions and rapid progress in Brazil’s soybean harvest may have tempered further gains for maize and soybeans. A reflation scenario for US goods and services continues to be promoted among some economic analysts, citing strong US wage growth and potential trade frictions. Wheat prices were lower by almost 5 percent y/y while maize prices registered a 2 percent increase. Soybeans continued their y/y strength, trading 19 percent higher. Rice prices continued in the doldrums, lower by 2 percent m/m and 13 percent y/y.
- Volumes and Volatility: Wheat, maize and soybean volumes followed seasonal trends for February, rising m/m 42 percent, for the wheat and maize and 44 percent for soybeans but closely tracked y/y levels. Despite hefty volumes, volatility levels showed few changes m/m. However, both implied and historical volatility levels were higher y/y for all three commodities, particularly for soybeans. As levels remain in the high teens for wheat and maize and low 20’s for soybeans, they continue to indicate a relatively low volatility environment.
- Basis levels and transport: Basis levels for wheat, maize and soybeans were mostly unchanged m/m in the interior as producers took advantage of marketing their crops at higher futures prices ahead of planting season. In Illinois, the interior bids to local elevators were minus USD 7 and minus USD 12 per tonne relative to March futures for maize and soybeans respectively, while in Iowa, the bids for the respective crops were minus USD 16 and minus USD 29. Domestic soft red wheat values were quoted at around minus USD 5-7 below March futures. Gulf export quotations also were unchanged to slightly lower at around USD 18 for maize and USD 11 for soybeans over the respective March futures, while SRW Gulf export values were unchanged at about USD 20 per tonne over the March futures. Barge freight fell by about 12 percent m/m to a level of USD 16 per tonne (Illinois River to Gulf quotation) as navigation improved. Truck transport rates have edged up as diesel fuel prices have risen. Based on USDA Feb 17 report, export sales continued on a robust pace, totalling 63 percent higher y/y while cumulative exports of 83 million tonnes was 30 percent higher y/y for the respective marketing years of wheat, maize and soybeans.
- Forward curves: Forward curves for wheat, maize and soybeans remained in the same upward sloping configuration for the March, May and July contracts (contango) m/m even though overall price levels were slightly higher. Soybeans exhibited a small relaxation of the inverse (backwardation) between the July 2017 and November 2017 contracts (referred to as the old crop/new crop spread) as traders were less certain about a significant switch from maize to soybeans during the upcoming US planting season. This spread, which had widened to USD 17 during January, declined by half to about USD 9 at end month.
- Investment flows: Managed money was very active in wheat and maize and less so in soybeans. Managed money cut its net short position in wheat by more than 60 percent from 108 000 contracts to 38 000 since end of January. In maize, it reversed its overall short position held since July 2016 to long, reporting a substantial net length of 107 000 contracts (13.6 million tonnes). While a reduction in open interest in wheat indicated short covering, a large expansion of maize open interest (by 150 000 contracts) signified increased hedging by producers and warehouses as grain moved off farm to commercial space, an activity also confirmed by the seasonally low basis levels. In soybeans, managed money added slightly to its net long, which was mostly accommodated by commercial selling.