Past Thursday in CBOT, soybean futures hit new lows for over a year and a half and corn fell to two-month lows as expectations for more favorable weather in the American Midwest became widespread. Wheat prices, on the other hand, have remained stable thanks to a strong demand that is able to cope with increasing supply.
The corn-sowing season in the USA started with several difficulties. At first, rains resulted in excess moisture that prevented farmers from planting, which then gave way to dry conditions that affected crop development along the US Corn Belt.
As of Week 25, 67% of the corn crop presents good to excellent conditions, its highest rating in four years. This fact has inserted fear into longs that expected a significantly smaller crop after soybean plantings grew by 7% and corn plantings fell by 4% year over year.
In the local market, corn has started arriving to ports once labor strikes ended. Past Thursday, 2,000 trucks carrying corn arrived to local ports, the largest number since March. It is expected that exports of 2016/17 corn keep rising throughout the next quarter as FOB prices remain competitive in relation to other origins.
Soybean prices slide in the local market
Since the beginning of June, soybean cash bids in the local spot market have weakened significantly, closing the past week far from the ARS 4,000 per ton level that enticed significant farmer selling. As of Thursday, most deals for cash soybeans were made around the ARS 3,700 per ton, and unlike wheat and corn markets, there are few price references for new crop soybeans.
Export tax cuts programmed for January 2018 will result in vastly different trading conditions. At the same time, it is expected that soybean supply could reach a record high thanks to ending stocks that could easily surpass 12 million tons for the current year given low farmer selling levels.
As of today, 2016/17 soybean purchases by the industrial and exporting sector equal 24.4 million tons, the lowest level in three years and almost half a million tons below the five-year average. At the same time, purchases without fixed price equal 9.1 million tons, a record high for the time of the year and almost 3 million tons over the five-year average.
Given the large number of purchases pending of setting price that are programmed for June, there is reason for buyers to try and limit demand as much as possible given their tight profit margins. On the other hand, these prices are barely profitable for producers, who sell only as much as they need to cover their financial obligations, resulting in low trading volume.
Wheat is the winner of the week
When it came down to price strength and trading activity, the wheat market was by far the highlight of the week. Bids for 2017/18 wheat started at USD 170 per ton, which attracted a large number of sellers. On the cash market, prices remained stable near the ARS 2,650 per ton level.
Exporters have been the main driver of wheat demand, with a record 9.3 million tons in purchases as of June 22.
With a 2016/17 wheat crop estimated around 16.6 million tons and initial stocks of 1.6 million tons, total supply for the current crop year equals 18.2 million tons. Meanwhile, on the demand side, purchases by exporters are expected around 10.8 million tons, whereas mills should purchase around 5.9 million tons, leaving ending stocks of about 800,000 tons. If our estimates are right, the stocks to use ratio should fall to around 5%, 5 percentage points below 2015/16 levels and far below the 50% levels reached two years ago. There has been much talk of producers increasing wheat supply and quality significantly in the past two years, but demand has not fallen behind.