Weekly Overview
Price changes this week
Over the past week, cereal prices experienced a slump, while oilseed complexes showed mixed results; in contrast to the falling prices of soybeans and soybean meal, the price of soybean oil rose, boosted by widespread support from the vegetable oil market. The USDA report did not show a significant deviation from market expectations. Soybean inventory estimates were slightly higher than predicted, but failed to significantly affect prices. This indicates that higher inventory levels are within expectations.
The Traders' Commitment (COT) report highlights that regulated capital funds continue to maintain a net seller trend and maintain net short positions in almost all commodities covered by this analysis. However, there has been a slight decrease in short positions in soybean meal, which may be due to an adjustment in long positions in oil stocks.
As attacks continue to escalate, it is becoming increasingly difficult to obtain war risk, which has exacerbated the volatile situation in the Red Sea, raising concerns that shipping routes may change, leading to higher transportation costs for end users.
Soybean Control Fund Net Position (Contract)
Looking ahead, traders will shift their focus to growing potential crops in South America and the profitability of upcoming US crops, which will affect planting intentions.
The level of crop insurance prices to be determined in the coming weeks, as well as the February outlook meeting's insight into the projected area to be planted, will play a key role in shaping market dynamics.
Corn Control Fund Net Position (Contract)
grains
CBOT wheat futures closed lower this week, and CBOT wheat outperformed its international peers. The market remains unstable as current supply offsets concerns about future supply.
CBOT futures prices are expected to be higher than other wheat markets until there is a clearer understanding of spring weather conditions in the Midwest.
A basic bullish pattern is taking shape, driven by huge global import demand and the need to keep production trending or above trend in 2024 to maintain stable exporters' inventory usage ratios.
However, without ideal weather conditions, production in the EU and the UK could drop by 6 million to 8 million metric tons year over year. Despite record Russian production and weak EU export demand keeping inventory/usage high in major exporters, this does not mean there is sufficient global supply.
CBOT Wheat Control Fund Net Position (Contract)
Grain exports from the Black Sea region continue, but as the war in Ukraine continues, the main issue remains the availability and cost of ship insurance. Market dynamics in early 2024 are likely to fluctuate due to large amounts of existing supply in Europe, Ukraine, and Russia and increased long-term supply risks due to reduced planting area.
CBOT corn futures weakened slightly, and the corn inventory data reported by the US Department of Agriculture was close to market expectations. Fund sell-offs continued, and controlled fund short positions were close to record levels.
Positive quotes from Ukraine and improvements in Argentina's forecast weighed on prices later in the week, indicating that a sharp drop in South American crop production would inevitably trigger speculative shortfall.
A meaningful bears' recovery depends on early signs of Brazil's monsoon receding, underscoring the need for production in the northern hemisphere to maintain or stay above trend. As the Regulatory Fund holds large short positions, price adjustments in the market will depend on the production results of genetically modified corn in Brazil.
Despite the heavy inventory valuation burden in the US, forward supply risks remain high, and Brazil's production results are critical to the 2024 global exportable surplus.
Oilseed complex
Soybean futures showed volatility and eventually closed down slightly. The expected shortfall recovery from the February WASDE report provided initial support, but the increase declined somewhat as the weekend approached. Continued net sales of funds put downward pressure on soybean prices.
Soybean Oil Managed Money Fund Net Position (in contracts)
Soybean Meal Managed Money Fund Net Position (in contracts)
CONAB's adjustments put Brazil's crop production estimated at less than 150 million metric tons, while the USDA cut was even smaller.
The influx of harvest supply from Brazil weighed on the nearby base, although short-term crop production is expected to pick up from seasonal lows before the end of February.
CBOT soybean oil prices will play an important role in any potential recovery of US soybeans. The market's attention will be focused on South American crop yields, influenced by upcoming weather patterns and soybean acreage estimates.
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