1/16/2024

The agricultural market is bearish

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Key points:

  • Prices for grains and oilseeds on world markets are falling.
  • The main reason for this is record corn harvests in the US and South America, as well as improved crop prospects in Argentina.
  • Corn hit a four-year low, soybeans hit a two-year low, soybean meal hit a three-month low and soybean oil hit a seven-month low.
  • Wheat showed mixed dynamics, but overall also declined.

On Friday, the US government released data that indicated a decline in grain and oilseeds prices. This came as no surprise, as speculators had been actively selling Chicago corn, soybeans, and soybean meal in the previous days.

Fund managers increased their net short position in Chicago Board of Trade (CBOT) corn futures and options, holding the largest bearish corn position since June 2020. The week also saw a surge in net sales, exceeding 33,000 contracts, the highest for any week since October. These moves reflect the overall downward trend in commodity prices towards the end of 2023.

Corn hits lows

Corn futures on the Chicago Board of Trade (CBOT) declined by 1% for the week ending January 9th, reaching their lowest level in four years. This downward trend reflects the growing global supply of corn.

The US Department of Agriculture (USDA) confirmed the increased supply on Friday, estimating record-breaking corn yields in the United States at 177.3 bushels per acre, surpassing the average market forecast of 174.9.

This record US corn harvest, combined with a significant rise in China’s already substantial crop, has pushed global corn stockpile estimates to a six-year high.

Corn futures plunged by more than 2% on Friday following the report, hitting new contract lows for seven different delivery months. March futures settled at $4.47 per bushel, the lowest closing value for the most active contract since December 2020.

Soybean becomes cheaper thanks to harvest

Funds have dramatically increased their bearish bets on soybeans over the past two weeks, driving down the most active CBOT futures by more than 5% during that period.

On Friday, the USDA released data indicating a larger-than-expected U.S. soybean crop, and production in South America also surpassed expectations. As a result, CBOT soybeans plunged to $12.03 per bushel, marking their lowest level since November 2021.

CBOT soybean meal futures hit their lowest point in the most active period since December 2021 on Friday, extending a two-month decline in prices. Improved crop prospects for Argentina, a major exporter of soybean meal, have added to the downward pressure in recent trading sessions.

For the week ending January 9th, money managers reported their largest net sales of the week in CBOT soybean meal futures and options, reducing their net long positions to 10,461 contracts from 43,039 contracts the week before. Just six weeks ago, net long positions in managed money were at an all-time high of 135,798 contracts.

In the new year, CBOT soybean oil stock sales have decreased, while money managers increased their significant net short positions by nearly 4,000 contracts to 46,608 futures and options contracts for the week ending January 9th. Soybean oil futures hit a seven-month low on January 8th.

Wheat showed mixed dynamics

Since late November, speculators have refrained from actively selling CBOT wheat futures and options, resulting in a 6% increase in wheat futures by January 9th. Traders have reduced their net short positions in CBOT wheat to 57,988 futures and options contracts through January 9th, nearly 2,300 contracts lower than the previous week, and very close to their position a year ago.

Despite global wheat supply estimates being slightly higher than expected, U.S. winter wheat planting for the 2024 crop fell short of all trade estimates, declining 6% from the previous year.

Over the past three trading sessions, the decline in the most active CBOT futures has been as follows: wheat 2.3%, corn 2.7%, soybeans 1.9%, soybean meal 1.5%, and soybean oil 0.4%.

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