Sun, 25 Sep 2022

Roundup: CBOT agricultural futures rally

Xinhua
14 Aug 2022, 13:30 GMT+10

CHICAGO, Aug. 13 (Xinhua) -- CBOT agricultural futures rallied last week as inflation concern eased, according to Chicago-based research company AgResource.

However, central banks in the United States and many other countries will keep tightening in an effort to reduce demand and put pressure on consumer prices to push inflation down to their 2-percent target. U.S. and world central bank policies of raising rates will dull demand with stagflation to emerge in 2023. Weeks ahead will be key in determining longer term price movement into yearend.

AgResource leans to a longer-term bullish trend, but will not rule out sharp breaks on the recessionary fear of demand destruction.

Corn futures rallied to a four-week high following this week's drop in U.S. crop ratings and amid lingering heat and dryness across the Plains and Western Midwest. AgResource notes another 1-2 percent drop in crop ratings lies ahead.

Funds are unlikely to return to the market in bulk until U.S. Department of Agriculture (USDA) September data is released. But the fundamental outlook into winter remains bullish. Most importantly, USDA projected in its August report global corn production is 5 million metric tons shy of consumption, and this number is forecast to expand to 10-12 million metric tons as European and U.S. yields are trimmed further. Ethanol margins in the United States are positive, and it is clear the South American cash market has formed its seasonal low amid slow producer selling in Argentina and record export demand in Brazil.

U.S. wheat futures ended sharply higher on the week as the market trades in a range of 7.70-8.20 dollars for December wheat contract. The wheat market's primary issue is one of abundant supply in the Black Sea and projected record low stocks/use in other major exporting countries. Russian FOB wheat prices offers will stay cheaply priced. AgResource expects USDA will raise the 2022 Russian wheat crop above 90 million metric tons in September, and potentially to as high as 95 million metric tons. Wheat is fairly priced at 7.50-9.00 dollars assuming Russia can export a record 42 million metric tons in crop year 2022-2023.

On paper Russian wheat stocks will be building even following record exports. It is clear Russia's export tax and ongoing logistical challenges have negatively impacted exporters, with combined July-August Russian exports estimated at 4.5-5.0 million metric tons, as against 7.4 million metric tons a year ago. Confirmation that monthly Russian exports are capped at 2.5-3.5 million metric tons a month will rather quickly funnel demand to other exporting countries and place wheat in a demand-driven bull. This confirmation will not be available until the last half of September or October.

Soybean futures rallied to strong weekly gains ahead of USDA's August reports and August futures contract expiration.

USDA's August Crop Production and the World Agricultural Supply and Demand Estimate (WASDE) reports were slightly bearish. Following a secondary acreage survey in the states of Minnesota, North Dakota and South Dakota, USDA's harvested acreage estimate was lowered by 300,000 acres (about 121,405 hectares). USDA's first assessment of the soybean yield potential based on producer surveys resulted in a soybean yield of 51.9 bushels per acre, up 0.4 bushels from the July report.

The larger yield more than offset fewer acres, and soybean production increased by 26 million bushels from July. With a record crop, the report held crush estimate at 2,245 million bushels, while the export forecast increased by 20 million bushels to 2,155 million bushels. The new crop stocks estimate was up 15 million bushels at 245 million bushels.

The Northern Plains and the Western Midwest need rain, and weather forecasts into September will determine if November soybean futures can muster a rally back to 15.00 dollars. AgResource is adopting a neutral stance on soybeans awaiting record South American production. Spot soybean futures are back near historic highs and new crop harvest is just weeks away.

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