{"id":642,"date":"2019-03-21T18:48:20","date_gmt":"2019-03-21T18:48:20","guid":{"rendered":"http:\/\/commodity-trading.campus.local\/commodity-trading\/?p=642"},"modified":"2019-03-22T07:27:28","modified_gmt":"2019-03-22T07:27:28","slug":"uncertainty-until-usda-report-wheat-corn1","status":"publish","type":"post","link":"https:\/\/campus.hesge.ch\/commodity-trading\/uncertainty-until-usda-report-wheat-corn1\/","title":{"rendered":"Uncertainty until USDA report (Wheat\/Corn#1)"},"content":{"rendered":"\n

(Cash price of corn)<\/h4>\n\n\n\n
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usd\/bushel<\/figcaption><\/figure>\n\n\n\n

Trader are currently facing a lot of uncertainty and pressure due to the next week report USDA which will give precise information about the choice of the farmer regarding the types of crops that they have chosen to plant. This will have a direct impact on the supply side at the global scale. Therefore huge variation of cash price have happened recently.<\/p>\n\n\n\n

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usd\/bushel<\/em> <\/figcaption><\/figure>\n\n\n\n

(Cash price for Wheat)<\/h4>\n\n\n\n
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usd\/bushel<\/em> <\/figcaption><\/figure>\n\n\n\n
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usd\/bushel<\/em> <\/figcaption><\/figure>\n\n\n\n

As you can see\nabove, forwards curves for wheat and corn are quite special as they are\nalways\/often in contango. <\/p>\n\n\n\n

This fact is\ndue that it has to always cover the cost of carry to give the incentive to the\nfarmer to keep growing this agricultural product. May to July are the only\nmonths when the contango becomes less steep for wheat. <\/p>\n\n\n\n

This is due to\nthe harvest period and the market is full of new crop. However for the corn, it\nis from July to September that the supply become huge and takes over the\ndemand. <\/p>\n\n\n\n

By logic, as\nthe market is bearish it will reverse the forward curve for two\/three months.\nFinally, when the market become more bullish as the demand is higher, the\nforward curve becomes again in contango. This feature is very typical for\nagricultural goods.<\/p>\n\n\n\n

USDA Planting Intention<\/p>\n\n\n\n

Each year, at the end of March, the US Department\nof Agriculture releases its Prospective Plantings report which is based on\nsurveys and states what the farmers are intending to plant for the coming year.\nIt is a powerful tool as it provides the market with an expectation of the size\nof each crop for the year.<\/p>\n\n\n\n

Corn and\nSoybean seems to be a great dilemma right now. <\/p>\n\n\n\n

According to\nFram Future analysis based on weather forecast and estimations, corn should be\nmore profitable than soybean but also riskier as processes are more complex. <\/p>\n\n\n\n

A survey based\non estimations of the plantation is going to be publish end of March by the\nUSDA, showing accurate numbers about the acres used for corn.<\/p>\n\n\n\n

As for now, the\nsupply is still uncertain waiting for the numbers to come. If acres used for\ncorn are less than 91.5 million and yield diminish slightly, stock in the US\nwould reach a 5-year low rate stock\/mass-needed (under 10%). If such hypothesis\nare confirm by the USDA plantation report, December futures price should\nincrease as supply is weakening. In summary, the whole year is actually getting\nplaned for the corn supply side in the US and solid assumptions about the\nmarket are going to be made next week based on that report and famers\nplantations. <\/p>\n\n\n\n

Last month\n2018\/19 U.S. corn outlook is for lower corn use for ethanol, reduced exports,\nand larger stocks. The corn used to produce ethanol decreased by 5 times (from\n25 to 5.5 billion. This conclude with a decrease on the season average corn\nprice by 5 cents to get a price of $3.55 per bushel. Also, for the substitute\nof the corn which is the sorghum, there is a decrease in the export of 15\nmillion bushels, to get a total amount of 85 million which is the lowest since\n2012\/2013. The production of corn is unchanged as the increase\nin yield forecasts is offset by a reduction in acreage. The corn production\nincreased for India but reduced for South Africa. The major change in which we can focus in 2018\/2019\nis higher projected corn exports for Argentina and Ukraine and reduction for\nthe United States. China\u2019s corn feed and\nresidual use is raised with lower sorghum and barley imports. Corn imports are\nraised for the EU and Canada. Foreign corn ending stocks for 2018\/19 are\nlowered from last month, mostly reflecting reductions for China, Brazil, and\nArgentina.<\/p>\n\n\n\n

Wheat:<\/h4>\n\n\n\n
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Wheat\nproduction, exports and consumption:<\/p>\n\n\n\n

Global wheat\nsupplies are lower due to smaller crop forecasts in Iraq and Kazakhstan.\nHowever, Global trade is expected to stay unchanged as lower wheat production\nin certain countries is offset by a larger one in others. Exports are\nincreasing from the EU and Brazil but lowering from the US and Mexico.<\/p>\n\n\n\n

The EU is\nexpected to increase its export to 23 million tons as it is experiencing an\nimproved export competitiveness thanks to a price discount to Russian wheat,\nthe improved competitiveness should continue for the rest of the trade year.\nThe EU is now having a more prominent role in supplying African and\nMiddle-Eastern countries. Egypt, the world\u2019s biggest wheat importer recently\nshifted from buying Russian wheat to buying EU wheat, mainly from France and\nRomania. <\/p>\n\n\n\n

The projected\nworld consumption is reduced by 5.1 million tons to reach 742.1 million and\nIndia accounts for 3.0 million of the decrease. This reduction is based on an\nupward revision of the wheat stocks estimates for 2019. Global ending stocks\nare increased 3.0 million tons to reach 270.5 million tons, which is 3 percent\nless than last year\u2019s record.<\/p>\n\n\n\n

As a trader point of view, the recent change in supply of Egypt from Russia to Europe is an opportunity to save money on the shipment as france and romania are much closer in term of distance than Russia. <\/p>\n\n\n\n

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usd\/bushel<\/em> <\/figcaption><\/figure>\n\n\n\n

Historical\nseasonalities have shown that the price of wheat reach a peak during\nJan-Feb-March. Therefore, when looking at the already existing average price\nfor 2019, we assume that the cash price is going to fall even more during the\nyear due to seasonality, probably closing the year lower than it started.<\/p>\n\n\n\n

Sources:<\/h4>\n\n\n\n

https:\/\/www.fas.usda.gov\/data\/grain-world-markets-and-trade<\/a><\/p>\n\n\n\n

https:\/\/www.usda.gov\/oce\/commodity\/wasde\/wasde0319.pdf<\/a><\/p>\n\n\n\n

https:\/\/www.farmprogress.com\/story-weekly-corn-review-0-30766<\/a><\/p>\n\n\n\n

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U.S. Corn Market Outlook: March Madness<\/a><\/blockquote>