Do you know the commodity market forecasts for August?

Do you know the commodity market forecasts for August?

  Political tension conditions the logistical flows of the global market  

The two most important economies on the planet are engaged in a historic trade duel that no country remains indifferent to. Last week, the first round of 25% cross tariffs imposed by the United States and China came into effect.

But the government of Donald Trump is already working to outline the list of Chinese products on which it will impose, within 2 months, new tariffs worth 200 billion dollars.

U.S./China trade war. Recent history.

It is the second largest exporter in the world, but its trade deficit (the difference between what it sells abroad and what it buys from other countries) reached a peak of more than 500 billion dollars in 2017.

The commodity market continues to be heavily influenced by this trade war that will continue conditioning global logistical flows. The usual origins are no longer the first choice and demand, depending on products, is configured differently.

In the case of cereal harvests in the northern hemisphere, the numbers and estimates are already very clear. Now we must focus mainly on the evolution of the harvest for Soybeans and Corn in the U.S. where the weather is behaving benevolently and the crops are evolving under exceptional conditions.

Estimated temperature and precipitation USA from July 22 to 29, 2018

  Cereals  

In global numbers, cereal harvests are not bad but are somewhat lower than the previous campaign.

Wheat

The main concern is with Wheat where the decline in production in Russia is the most conditioning factor. Premiums at origin in Europe are not yielding, despite the fact that harvest tasks are already starting in different areas.

Graph 1. Evolution of Wheat production in Russia

Graph 2. Evolution of Wheat production by countries. 2018 vs 2017

 Barley

In the case of barley, we must note that despite the large harvest we have in Spain, global stocks are significantly reduced, reaching levels similar to the 12/13 harvest.

For this reason, the global trade of this cereal will be greatly reduced, international prices will be very uncompetitive, and we will see a premium over wheat.

Graph 3. Evolution of global barley stocks

Corn

Corn experienced a cut in its production last campaign, but the volumes expected for the present are once again close to the record of 2016.

Consumption will continue to grow, stock recovery in the balance.

Graph 4. Global Corn Supply and Demand

Graph 5. EU Corn Imports by Country of Origin

     Soybeans and alternative proteins  

The situation of Soybeans is a continuation of the past month. Soybean futures have accumulated the largest price drop in CBOT history since June 1.

The trade war does not allow for the correction of net prices. Premiums, however, have risen in Brazil due to Chinese demand in that origin.

Table 1. Soybean Origins China

After the last 2 USDA reports placed on Fridays, there have been rises in Chicago that have been immediately corrected the following Monday.

Graph 6. Evolution of Soybean Premium Prices Brazil and U.S.

The state of the crop in the U.S. and record production estimates in South America for the next campaign will maintain the price trend.

Expected Soybean Production South America

Evidently, the U.S. climate must continue in normal conditions during the rest of July and August to avoid production problems.

Estimated global production map

 Rapeseed & sunflower  

Rapeseed and Sunflower productions will not be record-breaking but will be above the averages of the last 10 years. Demand flows will change, as China will need to source alternative seeds.

Graph 7. Rapeseed Stock

Graph 8. Rapeseed Production

   August 2018 forecasts  

The harvest pressure on Cereal should be noticeable. It is somewhat incongruous that Corn, having a tighter balance than Wheat, is almost 18 €/Tm lower in peninsular port positions than Wheat.

The national cereal will compete throughout the campaign by sending goods to coastal factories. Additionally, with the harvest delay that continues to occur (as of July 17, there is no possibility of harvesting barley in areas like Aranda de Duero due to the moisture the grain still has), the months we have for marketing the goods are practically reduced to 10. Therefore, the monthly availability is similar to a historic record harvest in our country.

We find it hard to believe that for soybeans there won’t be a surprise or upward twist in prices before the September harvest in the U.S. Therefore, we must lean more towards an upward trend than a downward one for the month of August, although the numbers in the medium term, if everything goes as planned, show us a downward trend.

The lower availability of alternative proteins, especially rapeseed meal, may keep it at a less competitive nutritional level than we are used to. The margins of the extractors, with such low oil prices, force them to try to work with more expensive meals that compete worse.

Sunflower will largely depend on China’s demand for the product from Ukraine and Russia, it may not be at low prices.

Estimated price evolution table for the month of AUGUST. Own elaboration