Commodity market forecasts for June

Commodity market forecasts for June

  Harvests are in the eye of the hurricane  

The harvests in Europe, which begin in less than a month in Spain, will be more relevant during July and August, and later we will see the final volume and its possible pressure on the development of cereal prices.

Figure 1. Global production, consumption, and ending stock for wheat after the latest supply and demand balance in the U.S.

Figure 2. Global production, consumption, and ending stock for corn after the latest supply and demand balance in the U.S.

Figure 3. Global production, consumption, and ending stock for soybeans after the latest supply and demand balance in the U.S.

Figure 4. Combined positions of funds in Corn and Wheat, (last 6 years and current)

What has most disrupted the logistical flows in the global supply and demand market is the trade war between the Trump administration and China. Chinese Vice Premier Liu He is trying to reach agreements to unblock the situation with the U.S.

In Spain, we have noticed the consequences not only in replacement prices: we have received Sorghum from the U.S. that was destined for China and, due to this situation, had to be diverted to other consuming countries. On the other hand, the lower liquidity of European barley, both old and new positions, is not competitive after Chinese demands for this cereal.

Figure 5. Combined positions in soybeans

 CEREALS

Reviewing the global data and based on the data from Figures 1, 2, and 3, wheat, despite the significant production cut in the Black Sea caused by the absence of rain and excessive temperatures during April (Map 1 and Figure 6), maintains an estimated stock for the end of the campaign that is very comfortable (2nd highest in history) after the record of the current campaign.

Map 1. Accumulated precipitation and average temperatures Black Sea. Apr 18

Figure 6. Wheat exports Black Sea countries

  Wheat  

Regarding wheat, we are particularly concerned about the situation in Australia, as half of this country’s wheat belt received less than 50% of normal rainfall in the last 30 days, remaining too dry to plant at this point (Map 2).

Map 2. Precipitation Australia from April 12 to May 11, 2018

In Spain, on the contrary, the weather continues to be favorable, and the chances of complications in harvest estimates are decreasing. It is true that the southern half of the peninsula is in very good condition and close to harvest in early June, but barley in the northwestern half of the peninsula is quite delayed, with some rain still needed in these areas.

Corn in the United States has been able to be planted quickly thanks to advances in machinery, reaching today over 65% of the area, a positive figure for the markets, although we are aware that next year presents us with a balance with less global production and a theoretically significantly lower ending stock.

Figure 7. U.S. corn harvest progress

Soybeans and Alternative Proteins

Soybeans continue to experience high prices due to the global situation, still far from the evolution of the U.S. harvest, which is already in the planting process with a percentage over 35% and with excellent expectations from the USDA for the October harvest.

Prices in Spain for 44 soybean meal, after the dollar’s strength against the euro in the last fortnight, a slight drop in base prices, and futures below the average of their last 90-day quotation, have eased slightly from the 420 €/ton we had on the first day of May to the 390 €/ton we currently have.

In any case, they are much higher than what manufacturing expects to work with from July-August if the U.S. evolves well.

Figure 9. CBOT Future soybean meal price evolution. July 18

In other proteins, we do not have significant changes this month:

There will be slightly more new campaign rapeseed supply from August-December, with prices below 250 €/ton at the northern port, but until that time, the availability for Rapeseed, Corn DDG, Sunflower, and other alternatives is not fluid, and prices are high.

As a novelty, we have availability of imported peas in some peninsular ports, and we also expect a very decent national harvest for this legume.

Figure 8. U.S. Soybean Crop Percentage. Evolution of three campaigns and 5 and 10-year averages

June 2018 Forecasts

Replacement prices for imported cereals are high, above 180 €/ton for the three main ones, and for the new campaign, they do not seem to show us an inverted scenario.

We continue to think that, in general terms, they should be a step above the minimum prices operated last year for the first periods, but below current quotations.

Corn will be higher than last year and the previous one, especially during the summer, as Brazil will be a less competitive origin than Eastern European countries.

As long as protein prices remain high, feed formulation will shift cereal demand more towards barley and wheat, to the detriment of corn. Therefore, in a few months, the corn balance will be adjusted with lower demand, potentially increasing the final harvest stock that its balance reflects today.

Soybeans will remain in a high price range, at least until August when we see that the U.S. harvest is a reality. From that moment, and until planting in South America from October, we could see even lower levels, although perhaps not at the desired 300 € that manufacturers would like.

Alternative proteins have a great advantage in competing with soybeans as production is in Europe. Therefore, proximity to demand will help us configure formulas with competitive costs. From August, all prices will be marketed at levels inverted compared to current ones, despite soybean meal being at the same levels as currently by that time.