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Discover the Commodity Market Forecast for July
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Discover the Commodity Market Forecast for July
Markets on the Decline
The market now seems to want to show a clear trend, although in the last two months it has been quite undefined and has complicated the decisions to be made for this month of July.
After the tensions of a complicated harvest overlap with price fluctuations caused both by the physical overlap of the necessary positions to cover consumption after the climatic delay in Spain, and by the exits of long positions from investment funds, as well as the drop in proteins led by soybeans that have been planted in record acres in the USA and whose crop condition is in an exceptional situation, we find ourselves at a moment where the current trend seems clearly bearish.
Prices in the futures markets for the main grains have dropped significantly, as well as the speculative positions of investment funds, releasing part of their longs.
Graph 1. Recent price trends in Chicago for Wheat.
Graph 2. Recent price trends in Chicago for Corn.
Graph 3. Recent price trends in Chicago for Soybeans.
The unresolved trade crisis between the U.S. and China seemed to have a neutral effect these days, but last Friday the battle of cross tariffs erupted, which, for now, already directly affects Soybeans.
As a result, markets are once again on the decline and must remain vigilant because it will affect logistical flows and the availability of certain commodities in different markets.
We take this opportunity to congratulate the animal feed production sector in Spain. In 2017, feed production exceeded a total volume of 24 million tons, according to CESFAC, placing us in the seventh position worldwide in terms of total compound animal feed production.
Evolution of Major Producers
Table 1. Main animal feed producing countries.
Cereals
Wheat
We continue with possible uncertainties regarding Wheat for the month of July and the negative impact on supply balances that high temperatures and lack of rain in Central Europe may have.
With the data in hand (see Map 1), despite the lower production and export to Russia, we must focus on the lower demand from North African countries, as well as the higher volume from the EU, regarding the future configuration of prices in our area of influence.
Map 1. Import and export volume in major global areas.
Map 2. Accumulated precipitation from June 3 to 10, 2018.
In SPAIN, harvest tasks have already begun, with a 20-day delay due to excessive rains, but with estimates that no one would have expected at the beginning of the year, given how the plantings developed and the absence of rain during that period.
Estimates from the Association of Warehousekeepers (ACCOE) place an estimated volume of over 20.5 million tons when last year we barely exceeded 13 million.
Maps 3 and 4. Graphical situation of the harvest and import logistics in Spain for the 17/18 and 18/19 campaigns.
Soybeans and Alternative Proteins
Soybeans
The soybean complex has experienced a larger drop than expected by experts, at least as of today, with plantings just completed. The crop condition in the U.S. for the good/excellent plant classification is in the best scenario, similar to 2010.
With this data and the delay in U.S. exports for the current campaign, coupled with the political situation affected by the cross-implementation of tariffs for traded products between both, forcing China to source from the southern hemisphere, the global logistical puzzle must be resolved.
Therefore, investment funds have sold a large part of their long positions, as seen in Graph 5.
Graph 4. Soybean crop condition in the U.S. June 2018.
Graph 5. Combined Soybean positions.
Figure 1. U.S.-China trade volume data 2017.
Rapeseed, DDG, and Sunflower
The impact of this drop on other protein sources has been mixed.
The greater liquidity in Corn DDG and the proximity of the new Rapeseed harvest in Europe have lowered the prices of these products. However, in Sunflower Meals, no decreases have been noted.
Presumably, China will be a major importer of Russian and Ukrainian Sunflower in this new scenario.
July 2018 Forecasts
Despite the €/$ exchange rate around 1.16 these days, import cereal prices for the usual new harvest segments have slightly decreased in €/ton, but insufficiently to compete with the prices offered with domestic cereal, given the large harvest volume expected.
Wheat
Large Port Wheat, around 185 €/ton Aug/Dec, does not compete with the theoretical parities of 175/176 €/ton origin national production areas.
Corn
Corn for Sep/Dec 2018 drops to levels of 178 €/ton in ports, nutritionally competing in the manufacturing of the peninsular coast. However, given the expectations of the next harvest, with large volumes available, operations for the September/December 2019 period have been made again at levels of 170 €/ton.
Soybean Meal
Soybean Meal has reached the price levels, around 350 €/ton, sooner than we anticipated. Summer is a period of climatic risk, so coverage now should be high for that period.
Nevertheless, it has accumulated a price drop since the first days of May of -70 €/ton. The bearish trend for soybeans will depend on whether the U.S.-China trade blockade remains or not, and whether the weather during July and August in the U.S. continues without negative surprises. Any change in these two directions can strongly raise the product’s price in the international market.
Table of expected price trends for the month of July.
Own elaboration.
ESSWIEBR00106f
