MONDAY is Independence Day in the US and the US grain markets are invariably quite volatile around this period in the season.
Of course, the British had their own “Independence Day” last week as they voted to leave the European Union.
We have seen quite a fall in the futures market over the past week and we can only hope July 4 marks the bottom in this season’s market.
Last week alone it is estimated that funds sold 96,500 corn contracts, 37,500 soybean contracts and 17,500 wheat contracts.
That is 1.25 million tonnes, 5.1 million tonnes and 2.4 million tonnes respectively.
No wonder we saw red for the entire week. It only took five trading sessions to wipe off more than three-quarters of the corn gains built over the previous three months.
The greatly improved US weather was not the only influence in the market last week.
The British vote to exit the EU came as a huge surprise to all except the “leavers” and the turmoil it generated in equity and commodity markets certainly spilled over into the world grain markets on Friday.
The impact of the “Brexit” vote will play out over many months (even years).
However, the release of the US Department of Agriculture (USDA) June 1 stocks, along with the acreage updates on Thursday night (Australian time) and the US weather will likely set the market tone over the next month or so.
Acreage is the biggest unknown. The market was quite shocked following the March 31 USDA report with grower planting intentions reported at 93.6 million acres for corn and 82.2 million acres for soybeans.
Corn futures made fresh lows and soybeans staged a two month rally as a result.
The market reaction is likely to have done its job, by enticing more acres into soybeans at the expense of corn and the June estimates tend to find more acres for both commodities, compared with the March report.
As production has grown both in the US and globally over the past few years, the stocks report has also sprung a few surprises.
The stocks numbers are estimates based on a survey of the market and invariably contain some errors from report to report that can misrepresent reality.
Financial turmoil across the globe stemming from the Brexit vote certainly won’t stimulate demand.
Flight to the security of the US dollar (and gold) saw it surge as the market watched the vote swing in favour of the “leavers” late last week.
This of course has drained the purchasing power of many countries by lowering the value of their own currencies. Slower economic growth could also reduce demand for commodities.
Back here in Australia, the domestic grower has closed up shop from a new crop marketing viewpoint.
Those who took advantage of the good prices by selling into the recent rally should be feeling quite pleased with themselves today.
New crop wheat values are back at least $20 a tonne since the highs and barley is down about $15/t over the same period.
Unlike the Brexit vote, the June 30 reports could turn out to be a fizzer. That would leave weather the only hope for rallies.
- Peter McMeekin is Nidera Australia’s origination manager.
