A generalized drop in commodity prices during the last month is keeping markets on the brink.
Prices of commodities have taken a fall during the present month, following the decline in futures, due to the liquidation of the long positions of the funds, due to the fear of an economic recession in autumn.
On June 30, the USDA released its report on planting intentions and final inventories in the U.S. As shown in Table 1, for corn and soybeans, planting areas are estimated to be smaller than expected, while the total wheat area recovers, with the exception of winter wheat. Higher inventories of corn, soybeans and wheat are expected.
Table 1. Planting intentions and final inventories in the US (source: USDA 30/06/2022)
The armed conflict between Russia and Ukraine continues, causing great volatility in the market, with prices that remain high, despite the decline of this last month, and the reduction of cereal consumption.
In France, exceptionally hot and dry conditions have adversely affected winter crops.
Map 1. Extreme weather events in Europe from 1 May to 17 June 2022 (source: MARS Bulletin 20/06/2022)
Table 1. Growing conditions in France as of June 27, 2022 (source: FranceAgriMer 01/07/2022)
In June, the price of oil weakened, due to high inflation, policies on biofuels and rumours of an economic recession following the rise in interest rates by the Fed and the ECB (Chart 1).
Figure 1. Evolution of Brent prices (source: tradingview.com)
The USDA June report, for the 2022/23 campaign, shows a reduction in global wheat production by 1.4 Mt to 773.4 Mt, 5.6 Mt below 21/22, mainly due to the fall in Ukraine (-11.5Mt), Australia (-6.3 Mt), Argentina (-2.2 Mt) and the EU (-1.7 Mt), while recovering in the US (+2.5 Mt), Russia (+5.8 Mt) and Canada (+11.4 Mt).
On the other hand the world production of corn increases, by 2022/23, by 5.1 Mt to 1185.8 Mt, 30.3 Mt less in a year, due to a decrease in Ukraine (-17.1 Mt) and in the US (-16.6 Mt), while it rises in Argentina (+2 Mt) and Brazil (+10 Mt).
Table 2. JUNE 2022 USDA forecast of cereal production and variation from the May 2022 forecast (Mt).
According to the USDA, in 2021/22 the world wheat harvest falls by 300 thousand t to 779 Mt, 3.3 Mt above 20/21. And corn rises by 500 thousand tons, to 1216.1 Mt, highlighting that imports remain in the EU at 16 Mt and in China at 23 Mt.
This month the European Commission, for the 2022/23 campaign, reduces the production of common wheat by 5.4 Mt to 125 Mt, that of corn by 800 thousand tons to 71.7 Mt and that of barley by 100 thousand tons to 52.2 Mt, all below this year’s production levels, with the exception of barley. For the 2021/22 campaign, it expects the production of common wheat to remain stable at 130.1 Mt (11.8 Mt above this year) and that of barley at 52 Mt (remaining 2 Mt below 20/21), while that of maize increases by 300 thousand t to 72.7 Mt (4.7 Mt over 2020/21).
Figure 2. European Commission forecasts for common wheat, maize and barley (source: European Commission).
Looking at the price differentials, it can be seen that corn stands above € 372 / t (8 euros less since May) for stocks in the port of Tarragona, wheat on € 390/t for stocks in the port of Tarragona (30 euros below the level of last month) and barley destination Lleida at about € 355 / t (30 euros less in a month, with the pressure of the new harvest and 25 euros below the level of corn destined for Lleida). The drop in cereal prices is due to the liquidation of the long positions of the funds, due to the fear of an economic recession in autumn, together with the pressure of the new harvest, although there is still little interest from buyers.
The price of national wheat is at the same level as the port, with the French 4 euros below, at € 386 / t, with the start of the new harvest at the national level while the national corn is 8 euros above that of the port and € 3 / t above the French.
The price of soybean meal decreases 4 €/t, to 528 €/t, the price of sunflower meal 30 €/t to 375 €/t, despite being in the current context of crisis, and Ukraine being the main producer of sunflower worldwide, while we continue without supply of rapeseed meal, due to lack of availability.
During this month of June, the price of palm oil firmly loses €292/t, that of soybean oil €207/t and animal fat €55/t (although there is still little availability), this price drop is due to the fall in futures due to the liquidation of oilshare and the liquidation of the positions of the funds.
During the month of June, the euro weakens against the dollar.
This month the Euro/dollar exchange rate has fallen by 3%, following announcements by the Fed of a 75 basis point increase in interest rates, the largest increase in 30 years, and the ECB supporting a 25-point upward revision in July, the first upward revision in the last 11 years. This last point has contained the fall of the euro against the dollar.
Figure 3. Evolution of the euro/dollar exchange rate
During this coming month of July, an eye must be placed on Covid- 19, the war between Russia and Ukraine and whether they finally open humanitarian corridors for cereal export from Ukrainian ports. As well as focusing on the evolution of oil prices, energy prices and if inflation continues on the rise due to the fear of funds of an economic recession. Therefore the next USDA report on July 12 with its adjustments will be highly anticipated.
Source: Modified from “Caída generalizada de los precios de materias primas” Isidre Guinjoan
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