[I am temporarily following Jeff Hiraishi in writing our Agri-Commodities Update and will only focus on the Grains and Oilseed complex. We will resume a more-comprehensive report encompassing a greater number of agri-commodities soon.]
General Overview: The first G7 meeting that included Joe Biden and the incoming U.S. administration was the topic of the week, leading to many expectations that were shaping reactions over the weekend and setting the stage for the upcoming market opening.
In addition, the inflation word was increasingly populating our newsfeed and our client conversations as it means both high prices for agri-commodities and for the food products at the end of the processing or the production chains. It also means the correspondence or linkage between agri-commodities (corn, edible oils) and oil prices (crude oil, transportation fuels) are high and that the hedging of raw materials and inputs becomes a clearer focus of corporations and traders, as options open interest on the Grains and Oilseed complex continues to grow.
The USD remained broadly stable during this past week vs EUR and JPY, while it slightly appreciated against CAD, after a long and gradual depreciation in the past 12 months.
Regarding global trade, the purchase of agricultural products by China remains high on the agenda for U.S. farmers, ranchers, and trading (and supply chain) companies with a palpable sense of uncertainty and, of course, the WASDE report published Thursday was the highlight of the week.
Corn: This past week, and after volatile markets in late May, traders had marked their calendars for June 10 as the day to watch as the June WASDE data was reported. The report showed new crop estimations are down in the U.S. and Brazil, and, as mentioned, continuing purchases from China are being anticipated. However, while yields, input costs, and revenues for farmers are not known, a sense of optimism about pricing and the ethanol mandate has been growing in the Midwest and the Central Plains. So, corn prices went up (at a whisker of $6.1/bu, the Dec 21 contract remains close to its 52-week high of $6.38/bu) and were bound to some profit-taking at the time of this report Friday morning.
Both the future prices of corn and soybean are in backwardation through their respective curve, albeit at high price levels. However, it is interesting to note that the corn marketing years continue to plateau nicely both for 2021/22 and 2022/23, which was not the case until late 2020.
Soybeans: Soybeans continued to recover slightly this week, and a mildly bearish WASDE report helped to keep the nearby contract at the level of the lows of late May, while the Nov 21 contract was broadly stable and hovering around $14.5/bu during the week.
On the soybean products front, though, the WASDE report confirmed strong consumption of soybean oil in the U.S., which means continuing headaches for US-based food processors using edible oils inputs and increased capital expenditures in the domestic soybean complex, as well as potential global arbitrage in function of the competing edible oils’ (canola and palm oil, in particular) availability and international prices.
Wheat: Wheat prices continued to consolidate from their 52-week high during the week on the back of the WASDE report and the increasingly tangible information stemming from time progressing into the marketing season. But contrarily to corn and soybean, Chicago wheat remains in a slight contango slope (with the Jul 21 contract in the $6.80s/bu and the Dec 21 contract closer to $7/bu). The same goes for Kansas City wheat until the Mar 23 contract.
While wheat for milling has remained broadly stable for the past five years in the US, the impact of strong Chinese buying for feed is being felt for wheat and coarse grains. This is probably where many market participants have continued to focus their attention, as together with weather and harvest of the new crop, the wheat and coarse grains’ increased imports from China may represent the most important source of volatility going forward.
Sources: Bloomberg, BNP Paribas Global Markets, USDA, CME, WSJ, University of Illinois, Purdue University, Food Business News
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