We continue to focus on the Grains and Oilseed complex for the present Agri-Commodities Update, and our next publication will be mid-September.
General Overview: In the context of the coming WASDE report of Thursday, Aug. 12, the weather and crop conditions (or market anticipation for those) have been fully in control in the past couple of weeks. The grains and oilseeds end stocks anticipations have been on the low side in the U.S., and we will see if the WASDE report brings any change to that. Farm prices remain constructive and on multi-year highs across the grain and oilseeds complex.
In the big picture, current market and supply chain conditions remain tight with (i) low U.S. stocks, (ii) opportunistic purchases from China, and now, (iii) the weather fully in the driver’s seat for the end of the crucial summer developments for corn and soybean, which so far have reached the 5-year condition averages. As we have mentioned for some time, food inflation is now clearly upon us, and that has been a recurring theme in the fiscal 2020/21 or 2Q 2021 results presentations made to investors by Agribusiness & Food corporations. In addition, it is a topic that recently revived pressing policy issues for the food industry in connection with the Renewable Fuel Standard and the diversion of edible oils towards transportation fuel blends instead of food products.
The USD remained firm vs EUR and is now trading slightly below 1.18. The CAD has remained broadly stable with USD/CAD hovering around 1.25/1.26.
Corn: This week’s cash and futures prices remained range bound with market participants scrutinizing any guidance from the weather. So there was less activity, and the prices have remained reasonably stable since the digestion of the last WASDE report on July 12. The weather in the Corn Belt remains constructive (excellent in the Eastern Corn Belt), and overall crop conditions for corn have been improving slightly. The key developments will be next week after the new WASDE report is published.
Altogether, the price of corn remains at a high level at about 8 percent above the low prices of late May and late June. The Dec 21 corn contract is trading slightly below its 50-day moving average on Aug. 6, but at the level of the 20-day moving average and above the 100-day moving average, evidencing a significant recent decrease in price volatility. At time of writing, Sep 21 corn and Dec 21 corn were trading slightly above $5.55/bu.
The future prices of corn remain in slight backwardation through the curve, still at reasonably high price levels. It is interesting to note that the corn marketing years continue to nicely form a plateau both for 2021/22 and 2022/23, which was not the case until late 2020.
Soybeans: As we noted before, soybeans prices seem to have stabilized from the June 16 and 17 bottoms with the futures contracts trying to find new equilibrium prices. The Nov 21 contract has been trading between $13.50/bu and $13.20/bu during the week ($13.37/bu at the open on Aug. 6), so lower than the $14.50/bu levels seen before the correction of the first half of June, but of course, much higher than the average prices seen during the past 6 months on this contract. Also, we have to keep in mind that the Nov 21 contract price has been standing at even much higher levels than that of the first new crop contract (Nov) at this time of the year since 2013.
Going forward, soybean prices will continue to be impacted by the crop condition data (excellent/good conditions are making some progress). Therefore, besides the WASDE report, price volatility may continue in relation to the prevailing weather in the Plains and the Midwest during the critical month of August for soybean physiological development.
Wheat: The situation is very different for wheat, as winter wheat is about 90 percent harvested (as of Aug. 1) and spring wheat is now showing less than 40 percent excellent/good conditions with the states of Washington, Montana, and the Dakotas still being very much impacted by the dry weather there. And looking at winter wheat prices in the past weeks, both cash and futures increased significantly (the Chicago wheat Sep 21 contract is up by 16 percent since the early July bottom and increased about 6 percent in the past 10 days). In our view, market participants are unsure about where global stocks (and U.S. stocks) really are and how the global trade of wheat will impact prices in that context. Next week’s WASDE report may provide a bit more clarity in that respect.
Now, a bit like the corn future curve, Chicago wheat shows a plateau for the next marketing year and the subsequent one, so the uncharacteristic contango slope that we had seen for several months while the new crop was being harvested is no more. The Sep 21 contract is trading at about $7.18/bu at the time of writing on Aug. 6 vs $6.72/bu on July 27, less than two weeks ago, and the Dec 21 contract is above $7.30/bu, both at very elevated prices (vs the past 5 years). At time of writing on Aug. 6, the Kansas City wheat Sep contract was trading above $7/bu, while the Dec 21 contract was around $7.15/bu.
Sources: Bloomberg, BNP Paribas Global Markets, USDA, CME, WSJ, Financial Times, University of Illinois, Food Business News
GENERAL DISCLAIMER
This document was prepared by Food & Agribusiness officers from Bank of the West. Bank of the West is part of the BNP Paribas group of companies. Facts and opinions expressed herein are based on a variety of sources which the author believes to be reliable, however we make no representation as to the accuracy and completeness of such information and Bank of the West does not accept any liability in this respect. The discussions and information contained in this document are the opinions of the author as of publication date and should not be construed or used as a specific recommendation for the investment of assets. None of this material is intended as an offer, or a solicitation of an offer, to purchase or sell any commodity, security or financial instrument. Nor does the information constitute advice or an expression of the Bank’s view as to whether a particular commodity, security or financial instrument is appropriate for you or meets your financial objectives. This material and its content are for information and discussion purposes only. Economic and market observations and forecasts, such as those discussed in this commentary reflect subjective judgments and assumptions, and unexpected events may occur. There can be no assurance that developments will transpire as forecasted. Nothing in this document should be interpreted to state or imply that past results are an indication of future performance. Any price information included in these materials are for information purposes only, are typically sourced from the exchange where the instruments trade and are subject to change without notice.