Week 30 Nov. – 04 Dec. 2020
Chicago wheat, corn and soybean futures edged lower on Friday and were heading for weekly losses as bumper wheat harvests in Australia and Canada along with rain relief for soy and corn crops in Brazil tempered talk of tightening global supplies.
A lack of fresh sales of U.S. corn and soybeans to China was also curbing prices, although a slide in the dollar index to a 2-1/2 year low this week could help U.S. exports going forward.
About wheat the supply and demand point towards a neutral outlook; however, prices will likely be driven by sharper movement in corn values.
However, primary fundamental themes remain the same over the week, i.e., developing weather in South America, demand for US production from China, and expected USD weakness on the back of continued quantitative easing resulting in higher commodity prices.
In primary view has not changed given the change in forecasts, as we do not see improvement in yield due to this change in weather pattern enough to turn fundamentals bearish.
The low levels of soil moisture leave no room for error, where anything less than average rainfall could have a severe impact on the final yields.
US carryout in soybeans in the face of continued demand from China will depend on the Brazilian crop size.
So, funds largely remain net-long with wheat’s exception where funds have switched from net long positions to net short positions. The longshort positions ratio in the oilseed complex still indicates a strongly bullish view by funds.
In this context, wheat futures in the US declined along with weaker prices in the rest of the grain complex.
The most active soybean futures on the Chicago Board Of Trade were
down 0.3% at $11.64-1/2 a bushel, staying on course for a first weekly decline in five weeks.
CBOT corn was down 0.8% at $4.23 a bushel and also set to end a run of four weekly gains.
Wheat was down 0.8% at $5.80 a bushel, near a two-month low struck on Tuesday.
The prices were pushed lower by higher revised production estimates in Australia and Canada.
In wheat, Statistics Canada on Thursday pegged 2020/21 Canadian wheat production at a seven-year high of 35.2 million tonnes.
That added to supply pressure created this week by an increased forecast of Australia’s harvest and a Russian proposal to expand its grain export quota. Black sea wheat prices remained unchanged over the week as demand from various tenders kept support under the prices.
For wheat prices in the black sea to turn significantly lower, there needs to be a continued slowdown in demand.
Though CBOT prices are trading lower, we expect limited downside as support from higher corn prices is expected to spill over into wheat.
The improved weather outlook in South America has coincided with a lull in Chinese purchases of U.S. soybeans and corn by China.
However, soybeans drew some spillover support from a rally in edible oils, with a surge in palm oil to an 8-1/2 year high pulling soyoil up in its wake.
The approach of the winter dormancy period for wheat crops in the northern hemisphere was also curbing momentum in wheat prices, despite uncertainty over the state of Russian crops.
Russian would need near-ideal spring weather to push prices lower in the new crop.
Fundamentals for standalone wheat are not bullish enough to result in a continued price rally, and the strength in corn prices usually would result in higher wheat prices.
Corn prices continue to be a function of the pace of Chinese demand for US corn and South America’s developing weather.
Corn prices closed sharply lower on the week.
However, this was after two months of the price rally.
US Corn is still competitive in the world export market, and the US likely estimated carryout would continue to reduce, acting as a support for corn prices.
We expect prices to trade sideways to higher from current levels, as US corn continues to be competitive for exports.
Though South American forecasts have improved, the risk of adverse impact on yield remains a persistent threat given the tighter carry out expectations.
