February Fallers by Matt Muller
The global grain market fell again briefly for February following the lull of Presidents Day in the US. The extended weekend ensured that lack of trading, combined with uncertainty within the market, facilitated a bearish trade of commodities
Wheat futures took a tumble as the front-month option expiry looms. “Pressure came on wheat as funds liquidated positions ahead of the first notice day for the March 2017 expiry,” said CRM AgriCommodities. The fall comes, as no one is willing to accept physical delivery of wheat in the face of potential large deliveries against March contracts. USDA said all wheat plantings would fall to 46 million acres, the lowest since World War I, while carryout would fall to 905 million bu., a 20 percent reduction from 2016 crop levels. In addition, the US market faced export news that was not positive. Egypt bought 360,000 tons of wheat, but not from US suppliers. Russia, Romania, and Ukraine are due to supply the crop as the US suffered from significantly higher prices and in turn, a greater freight cost. However the global markets can look forward as the sixth-month marketing window is due to end soon. Northern Brazil is ready for harvest, and this shifts focus on exports from South America. Only unpredictable harvest surprises or early planting news here will impact prices. The market is hoping for no more surprises such as the recent stream of stories coming out of Latin America, Brazil and Argentina alike. Any future incidents could have a greater impact on trade confidence.
Mexico There are conscientious efforts within Mexico to develop a bargaining chip ahead of talks with NAFTA (North American Free Trade Agreement). The Consejo Coordinador Empresarial is examining countries such as Brazil and Argentina to add new sources for soy, corn and wheat, according to Juan Pablo Castanon, the group’s president. The key is that exports from South American could offset any changes or difficulties that NAFTA present. Mexican businesses importing raw materials from other countries could hit US farmers hard. Mexico is the largest buyer of US -produced corn, spending $2.5 billion in the 2015-2016 season, ahead of Japan’s US$1.8 billion, according to the US Grains Council. Mexico has spent $800 million on US corn so far in the current season. The country is gearing up for talks with Canada and President Donald Trump, who has threatened to withdraw from NAFTA if his partners aren’t willing to renegotiate a deal that he blames for destroying American jobs. “We’d like to keep the trade deal as it is, but right now we have to look for alternative producers and Brazil and Argentina could work” Castanon said. Brazil & Argentina An ever-changing shift in South American weather has kept the market waiting to see what would happen to actual crop levels against projected yields. There was one bout of heavy rain in Argentina that pushed USDA to lower the Argentine soybean crop 1.5 mmt in the February USDA report. In contrast, optimal weather in Brazil caused USDA to raise the Brazilian production estimate two mmt in the January report. “The showers likely led to some slowdowns in soybean harvesting and safrinha corn planting in northern Mato Grosso and Goias, but no major delays are expected,” said Kyle Tapley, at MDA Weather Services. However, Deanna Hawthorne-Lahre, StatFutures co-owner and trader, says that global crop estimates are moving markets. Speaking of the wheat market, Hawthorne-Lahre says, “Argentina upped its 2017 crop estimate to 18.5 million metric tons from 15 mmt. That really caught the pit traders with their pants down.” Sugar has seen the same decline as March approaches. Marex Spectron, a leading global commodities broker, suggested that, “the market is suffering from disappointment that the March New York contract is approaching expiry, not with a bang, but a whimper". Sugar dropped to its lowest level for nearly two months at 19.15 cents a pound. The outlook will remain open to speculation, although the chief agricultural economist for Wells Fargo said he expects the current, low commodity prices to stay on a flat course in the near future. Economist Michael Swanson, who spoke at the February 8, 2017 Ag Forum in Nampa, told the crowd overall growth in global population is facing a downward trend, with growth projected globally at 1.1 percent annually. The message went on to suggest that producers adapt with what they can change, and to not focus on futures too heavily. He highlighted that North America is the largest producer of grain and oilseeds, with a supply of 2,000 kilograms of oilseeds per capita alone. This currently exceeds the supply demands of the US, and that by diversifying, producers can offset dramatic changes in the market.
90 | March 2017 - Milling and Grain