Louisiana Grain Terminal Reopens After Hurricane Ida as Nicholas Rains Arrive

Global grain trader Cargill Inc said it had reopened its Westwego, Louisiana, grain export terminal and on Monday unloaded its first grain barge since Ida came ashore on Aug. 29 and crippled shipments from the busiest U.S. grain export hub.

Cargill is the latest major grain trader to revive export operations after Ida devastated the region’s power grid and damaged some of the nearly dozen grain terminals dotted along the Mississippi River from Baton Rouge to the Gulf of Mexico.

Heavy rains from Nicholas lashed storm-battered Louisiana again on Tuesday after coming ashore on the Texas Gulf Coast, bringing the threat of floods and more power outages. The storm was expected to move over Louisiana, Mississippi and the Florida panhandle through Thursday.

Power was finally restored to Cargill’s heavily damaged terminal in Reserve, Louisiana, on Monday for the first time since Ida, but the company is still assessing damages from that storm and developing “phased reopening plans,” Cargill spokeswoman April Nelson said.

Cargill is monitoring rains from Nicholas on Tuesday, but it has not confirmed any impact on recovery efforts, Nelson said.

Rival exporters Louis Dreyfus Co and Archer-Daniels-Midland Co have been loading export shipments for several days, while a facility owned by Bunge Ltd remains shuttered, according to the companies and shipping sources.

CHS Inc and Zen-Noh Grain, which also operate large grain terminals near the Louisiana Gulf Coast, did not immediately respond to requests for comment on their recovery efforts.

U.S. grain exports hit their lowest level in years last week as shippers struggled to restart their facilities at the Gulf, where some 60% of U.S. crop exports exit the country.

The U.S. corn harvest is starting, meaning more grains will be available to move in coming weeks.

Nine grain vessels were loading for export at Gulf terminals and floating rigs this week, up from just three late last week, a barge broker said.

Louisiana state officials said rains from Nicholas are complicating the recovery from Ida, particularly in flooded parishes and those still without power, and in areas along flood-swollen rivers.

“We’ve gone through this sort of thing in the past, where we will get two storms at a time during the peak of hurricane system,” said Mike Strain, commissioner of the Louisiana Department of Agriculture. “It complicates matters.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karl Plume in Chicago, additional reporting by P.J. Huffstutter in Chicago, Editing by Franklin Paul and Aurora Ellis)

U.S. Grain Exports Sink as Gulf Terminals Struggle to Recover From Ida

Weekly U.S. Department of Agriculture (USDA) grain inspections data, an early indicator of shipments abroad, showed the volume of corn weighed and certified for export last week was the lowest in 8-1/2 years as no grain was inspected along the Louisiana Gulf Coast, the busiest outlet for U.S. crops.

Soybean inspections were up only slightly from the prior week’s seven-year low as only a single large bulk grain ship bound for top importer China was loaded last week in the Pacific Northwest and none at the Gulf, USDA data showed.

Ida crippled overseas grain shipments just weeks before the start of the Midwest harvest and the busiest period for U.S. crop exports, sending export prices soaring and stoking global worries about food inflation.

Most of the nearly dozen large grain terminals dotted along the Mississippi River from Baton Rouge to the Gulf of Mexico escaped the storm with only minor damage, but the region’s devastated power grid has hobbled the recovery.

More than 50 bulk vessels were lined up along the lower Mississippi River on Monday waiting to dock and load with grain once terminals reopen, and only a handful of ships had moved over the weekend, according to an industry vessel lineup report and Refinitiv Eikon shipping data.

The vessel Yangze Navigation was docked at Zen-Noh Grain terminal in Convent, Louisiana, on Monday waiting to be loaded with corn, the shipping data showed. Another vessel, the Darya Aum, docked over the weekend and was awaiting its soybean cargo at a terminal owned by Louis Dreyfus Co near Baton Rouge that was able to start loading vessels last week.

Archer-Daniels-Midland Co, one of the world’s biggest grain traders, restarted operations on floating midstream rigs that transfer crops from barges onto bulk ships.

The USDA’s Federal Grain Inspection Service (FGIS) said late last week that its New Orleans field office is still recovering from the storm and that its inspectors are working with exporters to provide official grain inspection and weighing services. The agency has no estimate as to when inspections will fully recover, FGIS said in an emailed statement.

FGIS inspectors checked just 138,189 tonnes of corn in the week through Sept. 9, down 85% from the same week a year ago, USDA data showed. Soybean inspections totaled 105,368 tonnes, down 94% from the same week a year earlier.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karl Plume in Chicago; Editing by Paul Simao)

U.S. Pegs Farm Income at Eight-Year High Amid Strong Corn, Soy Prices

A surge to eight-year highs in U.S. corn and soybean prices this spring has brightened the financial outlook for farmers even as aid payments from the federal government are declining. Crop prices have pulled back from peaks reached in May but remain historically high due to tight global supplies and robust imports from China.

Rising profits have increased farmers’ demand for land, tractors and tools, providing an economic boost to rural towns.

The USDA’s latest forecast is positive for equipment manufacturers such as Deere & Co, AGCO Corp and CPM Holdings, Moody’s Investors Service said in a note.

Farmers in recent years relied on aid payments from the federal government to offset financial losses linked to the U.S.-China trade war and COVID-19 pandemic. However, direct government payments are forecast to fall by 38.6% to $28 billion in 2021 due to reduced COVID-19 relief, after increasing by 103.5% in 2020 compared to 2019, according to the USDA.

In February, the USDA predicted net farm income, a broad measure of profits, would fall 8.1% in 2021 due to lower government payments and higher expenses.

Farmers’ production expenses will increase by 7.3% to $383.5 billion in nominal terms this year, according to the USDA. Spending on nearly all types of expenses is expected to rise, the agency said, as U.S. consumers grapple with inflation across a range of products.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tom Polansek; Editing by Mark Porter)

 

World Food Prices Jump in Aug, Cereal Harvest Outlook Cut – FAO

The Rome-based Food and Agriculture Organization (FAO) also said in a statement that worldwide cereal harvests would come in at nearly 2.788 billion tonnes in 2021, down on its previous estimate of 2.817 billion tonnes but still up on 2020 levels.

FAO’s food price index, which tracks international prices of the most globally traded food commodities, averaged 127.4 points last month compared with 123.5 in July.

The July figure was previously given as 123.0.

On a year-on-year basis, prices were up 32.9% in August.

FAO’s cereal price index was 3.4% higher in August from the previous month, with lower harvest expectations in several major exporting countries shunting up world wheat prices by 8.8% month-on-month, while barely surged 9.0%.

By contrast, maize and international rice prices declined.

FAO’s sugar index rose 9.6% percent from July, pushed up by concerns over frost damage to crops in Brazil, the world’s largest sugar exporter. Good production prospects in India and the European Union helped mitigate these concerns to a degree. Vegetable oil prices rose 6.7%, with palm oil prices hitting historic highs due to continued concerns over production levels and resulting inventory drawdowns in Malaysia. Quotations for rapeseed oil and sunflower oil also rose.

Meat prices edged up slightly in August, as strong purchases from China supported ovine and bovine meat prices and solid import demand from East Asia and the Middle East lifted poultry prices, FAO said.

The dairy price index edged slightly lower on the month.

FAO said the fall in its estimate for world cereal production this year was triggered by persistent drought conditions in several major producing countries.

Among the major cereals, the forecast for wheat production saw the biggest downward revision — down 15.2 million tonnes since July to 769.5 million tonnes — due mainly to adverse weather conditions in the United States, Canada, Kazakhstan and Russia.

The forecast for world cereal utilization in 2021/22 was cut by 1.7 million tonnes from July to 2.809 billion tonnes, still 1.4% higher than in 2020/21.

The estimate for world cereal stocks by the close of seasons in 2021/22 was lowered by 27.0 million tonnes since July to 809 million tonnes, pointing to a decline of 0.9% on stock levels registered at the start of the period, FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

Gold and Silver Length Cut in Half; Agriculture Bought on Weather Woes

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The summary below highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 10. A week where hawkish comments from Clarida, the Fed vice-chair and strong jobs report saw markets starting to price in an earlier than expected unwinding of the Fed’s massive stimulus program.

These developments helped trigger a one percent increase in the Bloomberg Dollar index while ten-year inflation protected yields jumped 16 basis points just after hitting a record low. Stocks saw another growth to value rotation while commodities traded mixed with heavy selling in precious metals being partly offset by continued buying across the agriculture sector. Energy and industrial metals also suffering setbacks on demand concerns in response the continued spreading of the delta coronavirus variant.

Commodities

The Bloomberg Spot index lost 1% during the reporting week to August 10, as the continued spreading of the delta coronavirus variant in Asia and parts of the US raised concerns about demand for key commodities such as crude oil and copper. Investment metals slumped on rising yields and dollar while the agriculture sector remained to the go to sector with adverse weather across the world providing a boost to both grains and softs.

Overall, the total net long across 24 major commodity futures was cut by 4% to 2.2 million lots with selling of crude oil, gas oil, gold, silver, and copper being only partly offset by demand for sugar, soybeans, corn, and wheat

16olh_cot1

Energy

Continued crude oil weakness saw speculators cut their net length in WTI and Brent for a second week to an eight-month low. This in response to demand worries caused by the rapid spreading of the delta coronavirus variant, not least in China were a relatively small number of cases has led to renewed shutdowns and restrictions on movements.

The combined long was cut by 48k lots to 566k, but just like the previous week reduction, the change was solely driven by long liquidation with no signs of appetite for naked short selling. Probably due to the belief the disruption will be transitory and that OPEC and friends, if necessary, will adjust production to support the price.

Monday morning comment: Crude oil trade lower for a third day with Brent back below $70after key oil consumer China released weaker than expected retail sales and industrial production data and following Friday’s very weak sentiment reading. These developments support IEA’s latest downgrade to demand for the months ahead as a resurgent delta coronavirus variant is impactingdemand across the world. Also, in the US there are signs shale producers are ramping up activities with the number after the number of rigs last week rose by 10 to 397, marking the biggest jump since April.

Metals

Speculators more than halved their gold and silver longs during a very troubling week for precious metals. The week covered a renewed rise in bond yields following Fed vice-chair Clarida’s hawkish comments and the strong jobs report culminating in last Monday’s flash crash. In response to these for metals adverse developments, the gold net length was cut by 52% to 51k lots while the silver length collapsed by 54% to just 12k lots, a fifteen months low.

Platinum, which during the week saw its discount to gold rise to $800 from an April low at $500 saw continued selling with the recently established net short more than doubling to a 13-month high at 9k. Rangebound copper was sold for a second week with the net long dropping 19% to 32k lots, thereby reversing half the buying seen since the June low at 19k lots.

Monday morning comment:

Gold finished last week on a firmer footing after a much weaker than expected University of Michigan sentiment (see below) helped deflate some of the buildup taper angst with Treasury yields and the dollar traded lower ahead of the weekend. Both paused their retreat overnight with gold and silver drifting lower as a result. A major band of resistance has emerged between $1790 and $1815 while support needs to hold around the $1750 area.

Following last Monday’s flash crash, speculators slashed their gold and silver net longs by more than 50% leaving the market exposed to fresh buying on a break higher. This week the market will be watching a speech by Fed chair Powell, as well as minutes of the Fed’s last meeting.

16olh_cot2

Agriculture

Continued price gains across the agriculture sector helped drive another week of speculative buying in both grains and softs. Adding to the support was the grain market gearing up for an expected price supportive monthly supply and demand report from the US Department of Agriculture last Thursday. A report that turned out to justify the recent buying, not least in wheat which surged higher on weather related production reductions in the US, Canada and Russia.

The world is potentially facing a supply issue with high protein milling wheat used for human consumption in bread, and that explains why Paris Milling wheat and Kansas HRW wheat both trade higher by more than 10% this month. Overall, the net length in Chicago and Kansas wheat was increased by 10k lots to 64k, still substantially below the interest seen in corn (254k) an soybeans complex (180k)

Sugar is another highflyer due to lower supplies from frost and drought hit regions in Brazil, and news India, the world’s second largest shipper is considering diverting canes towards the production of biofuel to curb imports of increasingly expensive crude oil. The net length in raw sugar futures rose 7% to a five-year high at 265k lots. The cotton long reached a three-year high at 73k lots while the coffee long suffered a setback after the price retraced from a multi-year high above $2/lb.

16olh_cot3

Forex

Speculators increased bullish dollar bets in response to the early August strong jobs report and hawkish Clarida comments. The reporting week ended last Tuesday when several currencies was under pressure from a strong greenback, not least the euro which was challenging key support at €1.17. In response to these developments, the net dollar long against ten IMM currency futures and the Dollar index jumped one-third to a fresh 17-month peak at $4.8 billion.

Selling was broad but mostly concentrated in euros, Japanese yen and Aussie dollar while short covering helped flip the Sterling position back to a net long.

16olh_cot4

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

  • Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
  • Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
  • Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Protein Pinch: China’s Soybean Imports to Slow Over Rest of 2021 on Curbed Meal Use

By Hallie Gu and Gavin Maguire

A collapse in hog sector profitability and a sharp rise in wheat feed use are crimping demand in China, where imports this year may now be less than 100 million tonnes, compared with a recent U.S. forecast of 102 million tonnes.

As China accounts for 60% of global soybean imports, its diminished appetite – just as U.S. farmers pull in what is projected to be their third-largest harvest ever – stands to add further volatility to the critical crop, which rallied to nine-year highs this year.

Graphic: China soy crush margins slump along with hog margins & pork prices – https://fingfx.thomsonreuters.com/gfx/ce/gkvlgmwggpb/ChinaSoyvsHogmargins.png

“Soymeal demand is reaching rock bottom. Basis is now at minus 120 yuan (in northern China), lowest this year. Demand might come back up, but it sucks now,” said a manager with a crusher in northern China that processes two cargoes of soybeans on average per month. “We can’t really place orders to make purchases. The volume of U.S. soybean exports will surely be affected.”

His plant only had one cargo booked for August, while normally it would have been fully booked until after October. As it stands, crushers in key soy processing hub Shandong would lose nearly 400 yuan with each tonne of the oilseed crushed.

China imported a record 48.95 million tonnes in the first half of 2021, up nearly 9% on the year as hog herds recovered from a deadly disease outbreak and top producer Brazil shipped a record crop. Now, however, demand is stumbling, analysts say.

 

Graphic: China soybean imports by key suppliers – https://fingfx.thomsonreuters.com/gfx/ce/akpezgqlmvr/ChinaSoyImportbySuppliers.png

 

“The (imports) momentum earlier in the year was quite strong. But then since May, year-on-year increase of imports has been slowing down,” said Zou Honglin, analyst with Myagric.com, a trade website.

MORE FEED, LESS SOYMEAL

A key driver of the slowdown in soybean use has been the reversal in hog margins, which started the year strongly as farmers tried to rebuild herds after a deadly outbreak of African swine fever (ASF), but then collapsed along with pork prices as fresh ASF outbreaks sparked herd liquidations and a surge in pork output.

Hog margins in China currently range from -150 yuan to 84 yuan, down more than 100% since the beginning of the year.

“The market kept lowering estimates on full-year imports. It is very obvious that protein consumption increase lags far behind the increase of feed consumption,” said Zou, who has lowered his full-year China soybean import estimates to 97 million tonnes.

Another critical factor has been a change in feed mix in China, which reduced the volume of soymeal required in animal rations.

 

Graphic: Chinese feedlots replaced corn with wheat in animal rations after corn prices soared this year – https://fingfx.thomsonreuters.com/gfx/ce/zdvxoydorpx/ChinaCornvsWheatJuly2021.png

 

China produced 139.33 million tonnes of feed in the first six months of 2021, up 21.1% from 2020, according to China’s feed industry association. Pig feed volumes were 62.46 million tonnes, up 71.4% from the year before.

In comparison, the volume of soybeans crushed during the same period rose 1.62% on year, to 42.63 million tonnes, according Myagric, tracking soymeal’s reduced share in feed.

“Demand is not as good as expected; a large volume of wheat and rice are going into feed, which would displace a lot of soymeal,” said another manager with a major crusher that has plants across China.

The manager added that some top feed producers who bought soymeal earlier were now reselling the contracts.

Rising soymeal stocks also indicated slower consumption. Soymeal inventories held by major crushers climbed 19% in June from the month before. They are 20% above year-ago levels, and about 7% higher than the three-year average for this time of year, according to the China National Grains and Oils Information Center.

The high level of wheat in feed mixes is expected to continue into next year.

SLOW FLOWS

Soybean flows to China are already slowing.

China’s June soybean imports from all origins came in at 10.72 million tonnes, down 4% from 11.16 million tonnes in June 2020.

July arrivals were seen at 8.3 million tonnes, with the majority originating from Brazil, according to Refinitiv. That’s down 18% from 10.09 million tonnes in the previous year.

Graphic: China soybean imports – https://fingfx.thomsonreuters.com/gfx/ce/zgvomwbgrvd/ChinaSoyImportsJuly2021.png

“The signs don’t look optimistic for a recovery at the moment. Domestic crush margins are still in the red while soymeal inventories remain high, said Howie Lee, economist at OCBC Bank. “Using U.S. new crop orders as a proxy, China has not been placing as much bids for the new U.S. soybean crop compared to 2020.”

(Reporting by Hallie Gu in Beijing and Gavin Maguire in Singapore. Editing by Gerry Doyle)

World Food Prices Fall in June for First Time in a Year – FAO

The Rome-based FAO also said in a statement that worldwide cereal harvests would come in at nearly 2.817 billion tonnes in 2021, slightly down on its previous estimate, but still on course to hit an annual record.

The Food and Agriculture Organization’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 124.6 points last month versus a revised 127.8 in May.

The May figure was previously given as 127.1.

On a year-on-year basis, prices were up 33.9% in June.

FAO’s vegetable oil price index plunged 9.8% in June, partly on the back of a fall in palm oil prices, which were hit by expectations of output gains in leading producers and a lack of fresh import demand. Soy and sunflower oil quotations also dropped.

The cereal price index dropped 2.6% in June month-on-month, but was still up 33.8% year-on-year. Maize prices fell 5.0%, partly because of higher-than-expected yields in Argentina and improved crop conditions in the United States.

International rice prices also fell in June, touching 15-month lows, as high freight costs and container shortages continued to limit export sales, FAO said.

Dairy prices dipped 1.0% on a monthly basis, with all components of the index easing. Butter recorded the largest drop, hit by a rapid decline in global import demand and a slight increase in inventories, especially in Europe.

The sugar index posted a 0.9% month-on-month gain, reaching its highest level since March 2017. FAO said uncertainties over the impact of unfavourable weather conditions on crop yields in Brazil, the world’s largest sugar exporter, pushed prices up.

The meat index rose 2.1% from May, with quotations for all meat types rising as increases in imports by some East Asian countries compensated for a slowdown in China’s meat purchases.

FAO said the slight fall in its estimate for world cereal production this year was principally triggered by a sharp cut to the Brazilian maize production forecast as prolonged periods of dry weather weighed on yield expectations.

Global wheat production prospects also retreated this month, as dry weather in the Near East hurt yield prospects there. By contrast, the forecast for global rice output in 2021 edged up.

The forecast for world cereal utilization in 2021/22 was cut by 15 million tonnes from the previous month to 2.810 billion tonnes, still 1.5% higher than in 2020/21.

World cereal stocks by the close of seasons in 2021/22 are now expected to rise above their opening levels for the first time since 2017/18. “Higher maize stocks foreseen in China account for the bulk of this month’s upward revision to world cereal inventories,” FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

 

Longs in Oil and Grains Trimmed Ahead of Key Risk Events

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 29. A week where risk-on courtesy of stable Treasury yields and an unchanged dollar helped drive the VIX index to a 16-month low and U.S. stocks, especially the Nasdaq to fresh record highs. Commodities generally traded higher with the Bloomberg Commodity Index rising 1.8% thereby supporting speculative net buying in 14 out of the 24 futures contracts tracked in this report.

Commodities

The commodity sector returned to form with broad gains seen across most sectors, thereby leaving the Bloomberg Commodity Index up by 1.8% on the week. The most noticeable exceptions being precious metals where gold-selling continued, grains where positions were adjusted lower ahead of important acreage and stock reports last Wednesday, and also crude oil where some profit-taking emerged ahead of the OPEC+ meeting. The 3% increase in the total net long to 2.3 million lots or $134.6 billion nominal value was led by natural gas (+61.4k lots), RBOB Gasoline (7.3k), wheat (7.8k), cotton (9.3), and HG Copper (8.3k). The biggest reductions were seen in WTI crude oil (-14.2k) and the soybean complex.

Energy

Despite a continued rally in crude oil during the reporting week, speculators opted to make a small reduction ahead of last week’s OPEC+ meeting. Selling was most pronounced in WTI with the bulk of the overall 3% reduction to 408k lots being long liquidation with no signs of short sellers emerging.

Latest

Crude oil trades close to unchanged with market participants trying to decipher what happens next within the OPEC+ group following a rare diplomatic spat between the UAE and Saudi Arabia. The UAE is looking for better terms and have so far refused the join a deal that would increase production by 400k bpd per month from August to December. At stake if the unity weakens, is the group’s ability to continue to control prices, and with this in mind the market is still refusing to believe that a deal will not be struck eventually. The OPEC+ meeting look set to resume Monday afternoon Vienna time. Twitter users can follow developments on Twitter by using #OOTT and #OPEC.

Metals

Speculators cut bullish gold bets by 5% to an eight-week low in the week to June 29, mostly due to fresh short selling. It highlights the prospect for a potential short-covering rally on a break above $1814. Silver and platinum both got bought with buyers also returning to copper for the first time in two months to lift the net long by 43% to 27.6k lots.

Latest

Gold trades near a two-week high, and resistance at $1795 as concerns over an earlier-than expected rate hike by the Federal Reserve eased following a mixed bag of U.S. job data on Friday. However, with U.S. ten-year real yields reaching low levels last seen prior to the mid-June FOMC meeting, the recovery so far looks anything but impressive. Focus this week on FOMC minutes and the dollar which currently provides most of the directional input. Speculators meanwhile cut bullish gold bets by 5% to an eight-week low in the week to June 29, mostly due to fresh short selling. It highlights the prospect for a renewed short-covering rally on a break above $1814.

Agriculture

Ahead of key acreage and stock reports from the USDA last week, the grain market saw a small net reduction in bullish bets primarily driven by a reduction in all three soybean contracts on rising short selling. Speculators meanwhile, and rightfully so, maintained their belief in higher corn prices by increasing the net long by 1% to 245k lots. Wheat was mixed with the selling of CBOT returning the net position to neutral while the net long in Kansas wheat received a 53% boost to 22.7k lots on emerging drought worries.

Forex

In forex, broad dollar buying continued albeit at a slower pace than the previous week when the market reacted to the mid-June hawkish FOMC meeting. Speculators cut their greenback short against ten IMM currency futures and the Dollar index to a nine-week low at $11 billion. Dollar buying was most noticeable against the JPY which despite trading close to unchanged on the week saw bearish bets jump 30% or 16k lots to a two-year high at $7.9 billion equivalent. Long liquidation was seen in EUR (-1.9k), CHF (-2.5k) while small buying was seen in CAD (+2.6k) and MXN (+9k)

Financials

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Grains in The Crosshairs on Tight Supply Concerns

U.S. traded grain futures staged a comeback yesterday after two reports from the US Department of Agriculture raised the prospect for even tighter global supplies following the Northern Hemisphere harvest this autumn. The quarterly stock and annual acreage reports both came in lower than expected, and considering the U.S. is the world’s largest corn and second-largest soybean producer, it highlights the risk to supplies at a time where weather developments remain quite volatile.

The combination of lower planted acreage reducing the ability to replenish stocks now at the lowest since at least 2015, will result in the market becoming even more weather obsessed as changes up or down could still swing final production numbers by millions of bushels. Currently in the U.S. wet weather has hit parts of the U.S. farm belt, while drought risks are rising in northwestern areas and across Canada.

Why haven’t U.S. farmers responded to surging prices in recent months and gone all in to extract as much profit as possible following years of price disappointments? Perhaps the answer lies exactly in that, with farmers appearing to have become more disciplined following a number of years with low prices and excess supply. In addition, the general commodity rally has also increased the cost of fertilizers and gasoline, thereby potentially deterring farmers from expanding sowings to far into marginal and less yielding areas.

The Bloomberg Grains Spot index jumped 6.4% with individual prices of wheat, soybeans, and corn all rallying. Not least corn which after closing limit at $5.885 per bushel, a 6.3% increase on the day, has continued higher today.

Source: Saxo Group

Loss of positive price momentum since May helped accelerate an ongoing reduction in bullish grain and soybean bets held by speculators. Since the first week of January when the combined net-long hit a record 800k lots, it has been reduced by close to 50%. The bulk of the reduction being led by the soybean complex in response to slowing demand from China and President Biden considering to give refiners relief from U.S. biofuel laws, which require them to blend billions of gallons of ethanol and other biofuels into their fuel or buy credits, known as RIN’s, from those that do. The cost of RIN’s has reached a 13-year high, thereby putting some refineries at risk of bankruptcy.

Overall, however, the much-reduced involvement from speculators may add some tailwind to the price as strong fundamentals may drive an improved technical outlook, which is what many leveraged funds focus on the most when making decisions to buy or sell.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Hawkish FOMC Hurts Gold Longs and USD Shorts

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 22. A week that dealt with the aftermath of the hawkish FOMC meeting on June 16. While most asset classes initially sold off, some including bonds and stocks had recovered strongly by the end of the reporting week last Tuesday. The stronger dollar meanwhile triggered a 31% reduction in the speculative dollar short while losses in metals and grains drove down the Bloomberg Commodity index by 2.2%, thereby triggering the biggest one-week reduction in bullish bets in four weeks.

Commodities

The commodity sector led by metals and grains took a tumble following the June 16 FOMC after the hawkish signal helped send the dollar higher and the inflation expectations lower. The total net long across 24 major commodity futures tracked in this was reduced by 6% to 2.24 million lots, a four week low. Biggest reductions seen in gold, silver and platinum as well as soybeans and sugar, while crude oil longs were left untouched amid strong fundamental tailwinds.

Energy

Crude oil, products and natural gas all traded higher during the reporting week, thereby avoiding the post-FOMC weakness that was seen across metals and agriculture. Strong fundamentals driven by OPEC+ keeping supplies tight as global demand recovers helped cushion crude oil with speculators only cutting their net long positions by 1% in both WTI and Brent.

Latest

Crude oil trades steady near the highest since 2018 with market participants expecting OPEC+ will keep supplies tight enough to support current levels. The group meets on Thursday to decide production levels from August and beyond, and the market is currently looking for an increase of 500,000 barrels per day which is less than the increases seen during the past three months.

With virus uncertainties due to the highly contagious delta strain and questions about an Iran nuclear deal hanging over the market, the group may opt for caution, hence the current price strength. Brent support at $74.5 while it would need to break below $72 before signaling risk of a deeper correction.

Metals

Speculators made deep cuts to their gold, silver and platinum longs after the FOMC meeting helped boost the dollar while lowering inflation expectations. The accelerated selling that followed the meeting helped drive down gold longs by 33% to 76k lots, a seven-week low and silver by 36% to 29k lots while the 81% reduction in platinum longs returned the position to neutral. Focusing on the latter, the relative strength seen in platinum since the initial sell-off can to a certain extent be explained by speculators rebuilding their long positions.

Latest

Gold continues to consolidate below $1800 with a break above $1820 probably needed to attract short-covering and fresh buying interest, especially after many speculators threw in the towel following the hawkish FOMC meeting on June 16. Before then the market remains focused on the dollar and its recent price adverse strength and whether inflation is indeed transitory, as signaled by central banks, or becoming more entrenched.

Agriculture

Speculators cut bullish grain and soybean bets to a nine-month low with the biggest reductions seen in soybean and bean oil. Bucking the trend we saw the wheat position flipping back to a small net long.

Forex

In forex, the broad dollar buying that followed the hawkish FOMC meeting on June 16 helped trigger a 31% reduction in speculative dollar short against ten IMM currency futures and the Dollar Index. The biggest flows that triggered the $6 billion reduction to a seven-week low at $13.1 billion was primarily driven by sales of euro (-29k lots), sterling (14k) and yen (7k). Despite falling by 2.2% the Swiss franc was bought to the tune of 4k lots.

Financials

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

  • Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other.
  • Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other.
  • Forex: A broad breakdown between commercial and non-commercial (speculators).

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Dollar and Metals Sold, Energy Bought Ahead of FOMC

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 15. A week that covered the period up until last week’s FOMC meeting and the hawkish surprise it delivered. Apart from a weaker dollar which attracted additional short selling, some of the other markets, most noticeable commodities had already started to see rising risk adversity, while bond yields crept lower before starting a rollercoaster ride which eventually today has led it back to unchanged pre-FOMC levels. The Bloomberg commodity index traded softer by 2.2% as the rotation out of agriculture and metals into energy continued.

Commodities

The commodity sector saw a small amount of net selling ahead of last week’s FOMC meeting, but behind the 1% reduction to 2.4 million lots we found a week where speculators continued to rotate out of agriculture and metals, both industrial and precious, and into energy, especially crude oil. Chinese efforts to curb industrial metal prices, lower gold prices on reduced inflation expectations as the market “buy” into the transitory message from central banks, and improved weather and growing conditions in the U.S. have all led to long liquidation and reduced appetite for exposure in these sectors.

Energy

The combined net long in oil and fuel products (ex. natural gas) reached 977k lots, the biggest bet on rising energy prices since October 2018. While industrial metals have suffered what looks like a short-term setback on rising market intervention by Chinese authorities and reduced focus on reflation, the energy sector has increasingly become the go to commodities. This in the belief that OPEC+ in the near-term will maintain market tightness as global demand continues to recover, and later on due to increased concerns that lack of CAPEX spent on new production could leave the market undersupplied from late 2022 and onwards.

The combined net long Brent and WTI crude oil reached 737k lots, again a level of exposure that was last exceeded in October 2018. A tightening spread to Brent and speculation that storage levels at Cushing, the WTI futures delivery hub, could shrink further amid strong Midwest refinery demand helped drive a 35% reduction in the gross short, thereby supporting a spike in the long/short ratio to a three-year high at 22.8 longs per one short position. While highlighting the risk a market at risk of becoming one-sided it also shows the strong belief in higher prices currently being exhibited by investors.

Metals

Bullish gold bets were scaled back for a second week with profit taking and fresh short selling emerging ahead of the FOMC meeting and following the recent rejection above $1900. The 10% reduction reduced the net long to 114k lots, a four week low. Silver saw a small amount of buying while copper longs were cut to just 20k lots, a one-year low and some 71k lots below the peak from last October. Once the weak technical outlook, supported by an expected improvement in the fundamental outlook, starts turning the price may see a strong bounce from buyers returning.

Agriculture

The grain and soybean sector continued to deflate with speculators cutting the combined net long in corn, wheat and soybeans by 15% to 352k lots, the lowest since last October. While the wheat net-short extended to 8.4k lots it was corn and not least soybeans that saw most of the selling. This on a combination of improved weather raising production expectations and potentially a reduction in demand for biofuels to be blended with gasoline.

Forex

In forex, the flows across ten IMM currency futures and the Dollar Index were very mixed but overall they resulted in continued dollar selling with the net short reaching a three-month high at $19.3 billion.

However, as can be seen from the table below, speculators were in general risk-off mode across the major pairs with both long and short positions being reduced. This just the day before the FOMC sprung a hawkish surprise which helped send the Greenback sharply higher to record its fourth straight week of gains, thereby challenging the short dollar consensus trade.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodities And Yields are declining. This Is Why.

Summary

  • A stone thrown in a pond makes smaller and smaller waves.
  • Any system subjected to a shock responds irregularly until it reaches equilibrium.
  • Any economy subjected to a shock responds with oscillating random waves until it reaches its long-term growth rate.

A rise in the inventory to sales ratio means inventories are rising faster than demand. The business response is to reduce them. Production needs to be cut. Purchasing of raw materials must be reduced. Hours worked and labor is lowered. Borrowing is also curtailed since less capital is needed to finance operations.

The market response to these decisions is declining commodity prices and interest rates.

The opposite takes place when the inventory to sales ratio declines, reflecting the need to replenish inventories since sales are outstripping inventory growth. Production needs to be raised. Purchasing of raw materials must be increased. Hours worked and employment are expanded. Borrowing is also increased since more capital is needed to finance operations and capacity expansion.

The market response is higher rising commodity prices and interest rates.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

The above chart shows the change in the inventory to sales ratio of three industrial segments: manufacturers, wholesalers, and total business.

The inventory to sales ratio (April data) has been sinking, reflecting demand outstripping supply by a wide margin. The last time it happened with similar violence was during the great recession of 2008-2009. Businesses will continue to respond by aggressively increasing production. This is the major business activity supporting the economy until inventories are growing at the same pace as sales.

The weakness in commodities and yields will provide an important clue whether inventories are finally outstripping demand and there is an unwanted inventory accumulation. It will take a few more months to find out. Commodity prices, however, being an important leading indicator, will provide important clues on the direction of the business cycle.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

This chart shows the percent change on a month-to-month basis of sales, durable goods orders, and autos. The graphs show the growth patterns of these crucial sectors. The economy is oscillating like the waves generated by throwing a stone in the water.

The first big wave was caused by the lockdown of March 2020. The system boomed until May 2020, followed by a slowdown ending in Nov 2020. We experienced another wave which peaked in May 2021. The current decline shows the economy slowing down again. It will eventually reach its growth potential of 1.5%-2.0%.

The economy will have to continue to slow down to a growth rate lower than 2%. The reason is productivity growth is about 1.0% and population growth is 0.4%. The average growth rate of business activity is computed by adding these two numbers. No government program can stop this natural process.

This development is the main reason for the continued decline in commodities and bond yields.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

This chart shows percent changes on a month-to-month basis of employment in manufacturing and construction. The employment situation in construction and manufacturing gives mixed pictures. Employment in construction has declined, confirming the weakness in housing and the decline in lumber prices. Manufacturing employment will stay firm thanks to the ongoing manufacturing effort to rebuild inventories.

Source: Cass Information Systems, Inc.
DiagramDescription automatically generated
Source: SockCharts.com, The Peter Dag Portfolio Strategy and Management

Shipping activity is still strong. This trend confirms the health of the manufacturing sector. The goods produced to replenish inventories must be shipped, thus causing the index to surge. It also explains the strength in crude oil prices – one of the few commodities resisting the decline.

The above chart shows the trending and gradually slower growth of the economy is confirmed by the broad decline in the major commodities – from soybeans to copper to lumber – except crude oil.

Key takeaways

  • The economy is trying to find its equilibrium growth rate which is close to 1.5%-2.0%, down from the current 10+%.
  • The various stimulus programs emanating from Washington generate random forces, further creating uncertainties and delaying the healing process of the economy caused by the lockdown of March 2020.
  • As the growth rates of the economy decline from the recent absurd 10+% to less than 2.0%, the markets will respond by placing continued downward pressure on commodities and yields.
  • Bonds (TLT) will keep appreciating, creating profit opportunities, and providing an attractive hedge to equity portfolios.

Gold Long Extends Further; Ag Selling Picking Up Speed

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday’s crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.

Commodities

The Bloomberg Commodity index dropped 0.7% on the week as an emerging correction across agriculture commodities, led by soybeans and corn off-set gains in energy and precious metals. In response to these developments, hedge funds cut bullish commodity bets for a second week with the total net long across 24 futures contracts falling by 4% to a four-week low at 2.4 million lots. Broad selling across all sectors except precious metals was led by corn (25.3k lots), soybeans (25.2k) sugar (20.8k) and crude oil (22.2k) with most of the buying concentrated in gold (11.3k) and natural gas (12.1k).

Commodities Chart

Energy

Speculators cut bullish oil bets for a second week with the combined net long in Brent and WTI falling by 22.2k lots to 634k lots to a six-week low. In Brent, the reduction was driven by increased short selling with the gross short rising to the highest since November. The short-term outlook has once again deteriorated with the prospect for rising Iran production and OPEC+ production increases hitting a market still lacking the synchronized global recovery in in demand. Despite a strong recovery in fuel demand across the U.S. and Europe, continued Covid outbreaks in Asia will continue to impact the short-term outlook and not least the recovery in jet fuel demand, which looks set be very slow with restrictions and lack of interest flying intercontinental not going away anytime soon.

Fuel products continued to be bought with the net longs in gas (143k lots) and NY Harbor ULSD (24.5) both reaching the highest levels in 30 months. Natural gas meanwhile saw fresh buying as the contract made another and so far unsuccessful attempt to gain a foothold above $3.

Metals

Gold’s new found momentum helped drive a third consecutive week of fund buying, which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across crypto currencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.

Silver gave back some its recently earned relative strength against gold in response to continued profit taking hitting the up some of the up until recently highflying industrial metals. The net long was cut by 3% to 46.5k lots while a second week of net copper selling reduced the net long there by 15% to 51.9k lots.

Agriculture

Emerging profit taking helped drive a 9% reduction to 963k lots in the net long held in ten major grains and soft commodities. Most noticeable was the accelerated net selling across the three key crops where 25k lots reductions in both corn and soybeans triggered a reduction in the net long to a December low at 458k lots. The bullish soybean momentum has eased with planting in the U.S. progressing at speed while wheat’s two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn meanwhile managed to hold steady supported by tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from the renewable fuel industry.

Agriculture

Forex

Mixed flows in the week to May 18 resulted in an unchanged dollar short position against ten IMM currency futures and the Dollar Index. Buying of EUR (5.9k lots) and CAD (7.5k) being offset by selling of JPY (9.2k) and GBP (3.3k).

Forex Chart

From a ten-year high at $36.8 billion on January 19, the dollar short against the mentioned futures contracts dropped to a $5.2 billion low five weeks ago before short-sellers re-emerged to take it back to the current $15.5 billion.

DXY

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Organic Soybean Processors of America Takes On India in Antidumping Case

The Jacobsen is reporting, a new antidumping and countervailing duty petition was filed on March 31 by the Organic Soybean Processors of America; and several organic soybean crushers. The Petition includes less than fair value antidumping language and unfair subsidies allegations against India. The Department of Commerce and the International Trade Commission will conduct the investigations. Within the next 45 days, the International Trade Commission will determine if there is a reasonable indication that the imports injure the U.S. industry. If the ITC finds that this standard is upheld, then the cases will move to the Department of Commerce, which will calculate the preliminary antidumping duty margins.

The Time Line

The Department of Commerce preliminary determinations are currently scheduled for June 24 for unfair subsidies and September 7 for antidumping, which are the dates when importers will be required to deposit the calculated duties upon the products’ entry into the U.S. market. There are strict deadlines for this procedure. According to The Jacobsen sources, several organic soybean exporters were contacted by the U.S. International Trade Commission on 3/31/21.

The complaint goes on to say that “Indian producers were able to offer these prices and capture this market share as a result of dumping and a series of subsidy programs that the Department, the Commission, and the World Trade Organization repeatedly have found to violate U.S. trade laws and multilateral trade agreements.”

The complaint discusses how organic soybean meal is used in the United States and the premiums that it can garner relatively to conventional soybean meal. Additionally, the complaint discussed the total actual demand for OSBM in the United States increased by a CAGR of 7% per year since 2014. The industry can crush approximately 550K metric tons of organic soybean meal per year. The Petitioner has alleged antidumping margins of 154.12% ad valorem and unfair subsidies above de minimis.

What is the Key Subject?

The U.S. International Trade Commission says that they consider if “there has been significant price underselling by the imported merchandise as compared with the price of domestic like products of the United States,” and also whether the effect of imports “otherwise depresses prices to a significant degree or prevents price increases, which otherwise would have occurred, to a significant degree.” The write-up says that U.S. prices of organic soybean meal have been consistently falling in a period when the demand has been increasing. The complainers have lost significant revenue because of the imports over the 2017-2020 period. The complaint says that 376K short tons of organic soybean meal sales were lost due to the imports.

How to Hedge Organic Corn and Organic Soybeans

The Chicago Board of Trade started offering corn contracts with formal rules in 1865, the same year The Jacobsen began publishing.

Beginning in 2021, for the first time, commercial entities that wanted to hedge or trade organic corn or organic soybeans will have that opportunity using The Jacobsen data via Stableprice.com.

Purchasing Calls and Puts

Stableprice.com will offer call (call spreads) and put (put spreads) options on organic corn and organic soybeans using The Jacobsen data to settle each trade. This process will allow consumers to hedge their exposure with triple-A rated insurance companies as their counterparties.

This first of its kind product will finally enable organic grain traders to trade derivatives using the most trusted publishing company in the business. The products are available now, allowing you to trade immediately using our trusted data. The types of options that are available are both call options and put options.

To hedge, you can either buy a call option on organic corn, which protects you if prices rise. Alternatively, you can buy a put option to protect you against organic corn (soybean) prices falling. You will pay a premium for the right to either buy or sell organic corn (soybeans) in both cases. The initial product offered by Stable price is a call spread or put spread, which means that the protection value is capped.

For example, you can purchase an $8-12 call spread on organic corn, capturing any movement between $8-$12 per bushel. Above $12, you will not be protected.

Average Price and European Options

Stableprice.com will offer both average price options and European style options. Average price options measure the average price calculated during the month versus the strike price, while European style options measure the strike price versus the last trading day of the month. If you are a Premium client of The Jacobsen we will calculate the averages for you. You will also see historical averages that can help you determine the most accurate strike price to use when you purchase calls and puts.

Triple-A Credit

If you trade options with Stableprice.com, you will face a counterpart backed by Triple rated insurance companies, including AON. This product provides the peace of mind the industry has been waiting for.

Additionally, companies with exposure to fats, oils, hides, and hemp can hedge their exposure using similar concepts. The Jacobsen is one of the few companies with IOSCO certification and is considered the most trusted commodity price discovery source. If you are looking for more information about how you can hedge your organic corn or organic soybean exposure, please contact David Becker at david@thejacobsen.com.

Organic Soybean Prices Forecast to Hit 5-Year Highs

Historically, during the fall the seasonal tendency is for Indian organic soybean prices to decline into the middle of the Q4. During the balance of the fall, prices tend to find their seasonal bottom and then begin to rise following the harvest. Exporters tend to talk up prices by discussing issues related to the weather and the decline in production for the ongoing harvest.

In 2020, the themes are the same, but the price action is different. Soybean prices on the NCDEX have surged, rising to the 571 Rupee per metric ton which is the highest that NCDEX soybeans have been in October during the last 5-years. While the spread between Indian organic soybeans and Indian conventional soybeans will vary based on supply and demand and the region they are planted, prices for Indian organic soybeans have risen to $660 per metric ton FOB India. While meal prices continue to lag, it’s unlikely that they will remain subdued in the face of rising Indian soybean prices.

The Rupee has also strengthened recently which can also help buoy prices. During 2020, the Rupee has declined approximately 3% versus the US dollar but has strengthened approximately 4.5% since hitting a low in April of 2020 during the height of the COVID-19 scare. Since strengthening during the summer, the Rupee has remained in a relatively tight range between 73-74 per US dollar.

The Federal Reserve has used plenty of its ammunition to stabilize the US economy, and further economic weakness would put downward pressure on US yields, allowing the dollar to slip further. A strengthening Rupee will put additional upward pressure on organic soybean prices.

The rise in Indian soybean prices and in turn Indian organic soybean prices have occurred as projections for the new-crop in India have changed from 12-million metric tons of production down to 10-million metric tons of production. Price action is telling us that production projections might still be too high. Additionally, there is also an issue with containers making their way back to Indian which has lifted shipment costs to $120 per metric ton for both the east coast and the west coast.

During the past 4-years, the rally from the seasonal low in October to the seasonal high in either Q1 or Q2 averaged 19%. An average rally from 571 per metric ton would put non-GMO Indian soybeans near 671 per metric ton. This potentially could push Organic soybeans to $750 per metric ton and with shipping would place prices in Baltimore at $870 per metric ton or $24 per bushel for Indian soybeans.

With US domestic organic soybeans already priced close to $20 per bushel, this cycle would only generate further upside. During the U.S. harvest prices could be capped but once domestic soybeans are gone, the focus will turn to India where the majority of organic soybeans are imported. Nearly 70% of the organic soybean consumed in the U.S. is imported. While this large increase and outcome are unlikely to completely come to fruition The Jacobsen believes there will be further upward pressure on prices and is increasing its target for organic soybeans up to $23 per bushel for the Q1 of 2021.

Organic Corn Prices Remain Depressed Despite Decline in Organic Cracked Corn Imports

Organic corn prices remain depressed despite a decline in organic cracked corn imports. Organic cracked corn imports increased steadily during the ramp-up in organic poultry demand in the United States during the 2017/2018 marketing season but have tailed off during the 2019/2020 season.

There was a dearth of organic cracked corn imports in September 2020 which was in line with the Jacobsens expectations. Despite the lack of organic cracked corn, organic corn prices have remained depressed. The Jacobsen estimates that no organic cracked corn imports arrived in September in the United States, which compares to approximately 1,600 tons which appeared in September of 2019. Historically, September has experienced robust volumes of organic cracked corn imports. For example, in September of 2018, approximately 22K tons of organic cracked corn was imported into the US.

While organic cracked corn remains a bone of contention, especially for US domestic organic farmers, the volume has declined in the past marketing year. The Jacobsen estimates that organic cracked corn imports for the 2019/2020 season were down 27% year over year, compared to the 2018/2019 marketing year.

The decline in cracked corn imports is likely a function of the drop in organic whole corn prices and the robust increase in organic whole corn available in the US. With the harvest season upon us, organic corn prices will continue to face pressure unless demand accelerates quickly or, organic cracked corn and whole corn imports moderate throughout the 2020/2021 season. The downturn in organic corn prices has not impacted the strong demand and upward price movements of organic soybeans.

The 2019/2020 season was littered with low test weight organic corn, that was sold at a discount. The Jacobsen does not expect the 2020/2021 season to see this same phenomenon, which could help buoy organic corn prices if demand remains robust and imports begin to decline.

Organic Soybean Prices Continue to Experience Tailwinds

Organic soybean meal prices continue to edge higher and are currently quoted at 630 per metric ton FOB India. There are concerns amongst merchandisers that are helping to keep prices buoyed. First, the weather in India has been wetter than expected and has likely damaged some of the crops. The Jacobsen had expected the total production of soybeans in India for the 2020/2021 season to produce close to 11-million metric tons per year, just a 1-month ago.

All of the soybeans produced in India are non-GMO with a portion that is organic. The Jacobsen is now hearing that as much as 30% of the crop could be damaged which could take the total production down to 7.7 million metric tons per year. It’s hard to believe that the volume of organic soybeans harvested could be less than last years 8.5 million metric ton that was produced in 2019/2020. A more realistic target would likely be 9-million metric tons of Indian soybean production.

Second, merchandisers are seeing that the new NOP crackdown is beginning to impact the deliveries of organic soybean meal that is brought into the United States. Merchandisers have said that organic soybean meal from Turkey has had issues which are making it more difficult to find organic soybeans and organic soybean meal.

Third, there appears to be an issue with containers in India. While there are plenty of containers that are being shipped from India with organic soybean meal to the US, there are not a lot of containers that are getting shipped back. This is creating a container shortage in India, which will likely have an impact on the organic soybeans and organic soybean meal that is exported to the United States that is expected to arrive in October and November. Merchandisers believe there will be a shortage of soybean meal that arrives in this month which is started to push the price higher.

Organic Broiler Sales Continue to Climb

The issues with organic soybean meal are coming as broiler sales as big-box stores and supermarkets continue to rise. According to The Jacobsen, organic broiler sales increased 15% year over year in August compared to the same period in 2019. For the 6-months ending August 31, since the pandemic has shut-down restaurants across the US, organic broilers sales have increased a robust 28% year over year according to The Jacobsen.

Organic Corn Prices Continue To Slide Despite Rising Demand from Retail Consumers for Groceries

Organic corn prices remain heavy, and the coming harvest will likely further weigh on organic corn prices. The potential damage to crops in Iowa will likely be offset by a bumper crop in Minnesota according to Merchandisers. Organic corn prices are hovering near the $6.50 level, with bids closer to $6 picked up at the farm.

There is a plethora of organic corn that is still in bins ahead of the new-crop season. The Jacobsen currently sees the organic corn carryover at 3.3 million bushels with less than 2-months before the completion of the old-crop season. There have been few contracts for new-crop reported recently and for prices to retrace back to the $7-handle could be a challenge.

Organic Animal Proteins Take a Large Piece of the Pie

The decline in organic corn prices comes despite rising demand for organic animal proteins (organic chicken, organic eggs, organic dairy) sold at supermarkets, and big-box stores are has grabbed a larger piece of the pie according to The Jacobsen.

Despite this upward trend, there has been little upward movement driving organic prices.  While food services continue to suffer and the supply chain remains fragmented, supermarkets and big-box stores are thriving.

In its latest financial report, Target reported that its private-label grocery brand, Good & Gather, hit $1 billion in sales after launching in September of 2019. Same-store sales surged year over year rising a robust 20%. At Walmart, E-commerce business jumped 97% year over year, boosted by people ordering groceries online to pick up at store parking lots. Both Walmart and Target carry a wide array of organic milk, organic cheese, organic butter, and yogurt, along with organic chicken and organic chicken eggs.

Organic animal proteins sold at grocery stores are taking a larger part of the overall pie, rising to 7% on average in the Q2. This compares to approximately 5% in 2018 and 5.5% in 2019. The upward trend should continue to perpetuate as more products become available.

Despite the drop in organic corn prices, organic soybean prices continue to remain buoyed as demand remains strong and supply is still scarce.

Temporary Slaughterhouse Closures Still Weigh on Organic Corn Demand

Organic corn prices remain soft and continue to feel the impact of higher imports and temporary loss of demand during April and early May. While demand has rebounded, the softness came just as imports surged creating an overhang that has yet to be worked off.

Organic chicken slaughter by weight has rebounded back to the levels that are consistent with this time of year. The 4-week moving average of organic chicken slaughter by weight has surged higher following a drop in April due to the closures of several slaughterhouses throughout the United States. In mid-April, there were three slaughterhouses in Pennsylvania alone that were closed due to the spread of COVID-19. Three months later, nearly all the slaughterhouses in the US are open or partially open.

The decline in organic chicken slaughter during April and early May led to a temporary halt in organic feed demand. While this has rebounded, it has yet to accelerated to catch up to retail sales demand for organic chicken. Mid-west merchandisers are saying that there is a plethora of supply on the interior of the US and they are looking for the coasts to increase demand and ship from the interior out to the coasts. Organic chicken slaughter by weight is down slightly more than 2% year over year for the first 28-weeks of 2020 compared to the same period in 2019.

While demand has been steady, the real catalyst for the decline in organic corn prices and other organic prices has been the volume of supply. Organic whole corn imports are projected to rise 35% year over year for the 2019/2020 season according to The Jacobsen. This compares to organic cracked corn imports which are forecast to decline approximately 3% year over year for the 2019/2020 season. Organic soybean imports are projected to decline by 12% year over year. Most of the increase in organic whole corn imports came from Argentina. One benefit of lower US domestic organic corn prices is that imports have become less competitive. This should reduce imports of organic whole corn during the 2020/2021 season allowing organic corn prices to stabilized and eventually grind higher.