The following report is an overview of the U.S. and South American economic, political and crop situations as of May 16, 2018. This report is intended to be informative and does not guarantee price direction.
From mid-April to mid-May soybean futures traded mostly lower on concerns over a U.S. and China trade war. Corn futures trended higher on talk of lower U.S. and world 2018 supply. Wheat futures backed off the recent highs on improving U.S. and world weather. In May, the USDA lowered the 2017/18 soybean carryout and raised the U.S. 2017/18 corn and wheat carryout slightly. The USDA lowered U.S. and world 2018/19 corn, wheat and soybean carryout due to higher demand and trend yields.
July soybeans are near $10.00. July corn is near 4.00. July Chicago wheat is near 4.95. The U.S. Dow Jones stock index is near 24,850 and mostly sideways since the April 2 low. July crude oil futures are near $71.00 on talk of better global demand. Global geopolitical issues have kept currency and financial markets volatile. Growing global economies though remain supportive to equities. Uncertainty over the outcome of NAFTA and talk of normal 2018 global supply could limit the upside in corn prices. Talk of higher Russia 2018 wheat supplies could limit the upside in wheat. The U.S./China trade issue is a big soybean price unknown.
USDA estimates U.S. 2017/18 corn carryout near 2,182 (unch)
USDA estimates U.S. 2018/19 corn carryout near 1,682
USDA estimates U.S. 2017/18 soybean carryout near 530 (-20)
USDA estimates U.S. 2018/19 soybean carryout near 415
USDA estimates U.S. 2017/18 wheat carryout near 1,070 (+6)
USDA estimates U.S 2018/19 wheat carryout near 955
World 2017/18 corn end stocks at 194.8 mmt (-3.0)
World 2018/19 corn end stocks at 159.1 mmt
World 2017/18 soybean end stocks was estimated at 92.2 mmt (+1.4)
World 2018/19 soybean end stocks was estimated at 86.7
World 2017/18 wheat end stocks was estimated near 270.5 mmt (-0.7)
World 2018/19 wheat end stocks was estimated near 264.3
After days of financial volatility reminiscent of previous economic crises, the government announced on 8 May it was seeking IMF assistance to shore up the economy. Financial turbulence and growing concerns over Argentina’s capacity to service its large foreign debt commitments caused the peso to lose over 10% of its value in a single day on May 3rd prompting the central bank to forcefully intervene.
A stream of downbeat data on the Brazilian economy has rolled in, suggesting that the recovery is weak. Retail sales decelerated and unemployment rose in the first quarter. Moreover, recent figures for the industrial sector have also been soft, and the manufacturing PMI fell in April. To raise much needed funding, the government is pushing ahead with the privatization of state utility Eletrobras, which is Latin America’s largest power company.
The following report is an overview as of May 20, 2018 and is intended to be informative and does not guarantee price direction.
Stock index futures advanced in early May in spite of recent increases in interest rates, and even though there were growing doubts about next month’s summit between President Donald Trump and Kim Jong Un. The small-cap Russell 2000 stock index futures advanced to new record highs.
Futures were able to advance despite news that nonfarm payrolls increased 164,000 in April, which compared to expectations of a gain of 193,000 jobs. Futures continued to trade higher on news that the U.S. suspended its threat to impose tariffs on $150 billion in Chinese imports to the U.S., while negotiations with China continued. Futures remained firm when even though Treasury Secretary Mnuchin said President Donald Trump could impose the tariffs, if an agreement between the two countries doesn't progress. Optimism on the market increased on reports that U.S. Commerce Secretary Wilbur Ross will travel to China week to help finalize a trade deal, after Washington and Beijing reached an initial framework agreement.
In the longer term, traders will probably gradually shift their focus of attention more toward corporate earnings and the still overall accommodative global interest rate policies and away from a variety of geopolitical worries, including global trade tensions and now the situation between the U.S. and Iran.
Crude oil prices advanced to their highest level since December 2014 due to reduced supply and to because of an anticipated increase in global demand. Turmoil in the Middle East and the reimposition of U.S. trade sanctions against Iran also supported crude oil prices.
However, prices declined more recently as major oil producers, including Saudi Arabia and Russia signaled a willingness to discuss lifting output. Saudi Arabian oil minister Khalid al-Falih said he would enter into discussions in June with other Organization of the Petroleum Exporting Countries members and external producers, such as Russia to reduce production caps.
OPEC and some external producers such as Russia have been involved in an effort since 2016 to remove almost 2% of the global crude supply in an effort to prop up the crude oil market. Some analysts are predicting the oil market will move into a deficit in the second half of this year and into 2019.
Longer term, crude oil futures are likely to resume the uptrend due to an improving global economy and supply and demand imbalances.
Gold futures declined since mid-April into the third week of May primarily due to a stronger U.S. dollar, along with slightly improved geopolitical tensions.
However, more recently, gold prices advanced to back above the psychological 1300 level as a result of President Donald Trump's cancellation of his June meeting with North Korean leader Kim Jong Un. President Trump blamed "tremendous anger and open hostility" from the North Korean regime as a reason that he scrapped the summit plans. North Korea, however, later said it was still willing to meet with President Trump.
Increased global inflation levels are likely to take place later this year, which should support the price of the yellow metal.
The U.S. dollar advanced to a five month high, as interest rate differential expectations continue to support the greenback. The probability of a fed funds rate increase from the Federal Open Market Committee at the June 13 meeting is almost 100%. Analysts are anticipating two or three more interest rate hikes from the FOMC this year and two or three additional rate hikes in 2019.
There was support for the U.S. dollar on news that the Empire State manufacturing survey's general business conditions index, compiled by the Federal Reserve Bank of New York, improved to 20.1 in May from 15.8 in the previous month. Economists were predicting a reading of 15.
Prices for the U.S. dollar advanced even though St. Louis Federal Reserve Bank President James Bullard outlined a case against any further interest rate hikes, when he said rates may have already reached a “neutral” level that is no longer stimulating the U.S. economy.
The euro currency fell to a six month low due to the growing belief that Europe's largest economy has slowed, following strong growth in the fourth quarter of last year.
Total manufacturing orders fell .9%, when economists had forecast an increase of .5%. In addition, the German statistics office revised lower its orders estimate for February. It now shows a monthly drop in orders of .2%, while the initial estimate had indicated a .3% increase.
In addition, the euro currency declined on news that the euro zone's annual inflation rate fell unexpectedly in April. The European Union's statistics agency said consumer prices were 1.2% higher than in April 2017, which is a decline from the 1.3% rate of inflation that was recorded in March.
There was pressure more recently on the currency of the euro zone due to concerns about the formation of a new governing coalition in Italy. The Five Star Movement and the League reached a coalition agreement last week to govern the country and outlined proposals that will likely put additional pressure public finances.
The European Central Bank will probably not be in a position to hike interest rates until possibly 2019.
The following is an overview of the European and Russian economic, political and crop situations as of 18th May 2018. This report is intended to be informative and does not guarantee price direction.
Another month on and EU wheat prices have returned back to largely where they were in the middle of last month, as weather fears and dryness that initially drove markets higher have seen sentiment ease despite the crop not being made yet. Strategie Grains monthly report cited that EU crops are generally in good shape, but eastern EU areas could start to suffer if hot and dry weather continues. Problem patches in Eastern Europe such as Romania, Bulgaria, Czech Republic and Poland will require continued attention, although sporadic rains have so far been well received.
Amendments to their 18/19 soft wheat forecasts reduced estimates to 140.8mlnt vs 141mlnt last month. A combined 600k was cut from Germany, Hungary, the Czech Republic, Bulgaria and Denmark, which was offset by at 400k increase in forecasts across France, Spain and Romania. Forecasts compare with a Thomson Reuters update that show 18/19 EU soft wheat production at 143.351mlnt.
French weekly crop ratings from FranceAgriMer have stabilized thanks to above average rains at 78% good to excellent, which is in part helping to see Matif spreads to CBOT widen back out. Euronext Matif released their first ever commitment of traders report, which so far has shown non-commercials holding short positions which, as of the 4th of May, total 7,641 lots. Despite some impressive weekly shipment numbers over the past month, exports to non-EU destinations continue to lag last year’s pace by 21% behind last year and continue to call for soft wheat exports for the season at 20.5mlnt.
Weather and politics have made for a volatile month for Black Sea grain with rising oil prices and therefore a higher Rouble helping to see intra-month highs in Russian old crop wheat values of 215 USD. New crop Russian wheat forecasts carry a 6mlnt range between 71.9mlnt to 78mlnt as analysts pare back last years planted acreage slightly due to less favourable spring weather, higher stocks and return of yield expectations closer to average trends.
A recent USDA report commented that Russian wheat stocks as of the 1st of March were 18.5% higher than in 2017 at 38.32mlnt, which will result in an overall carryout estimate of 15.52mlnt. As mentioned, this has been touted as one reason for lower plantings, but larger than usual carryover stocks also helping to support new crop export targets of 35mlnt.
Initial crop tours of the region are picking up on the dry conditions and troubled start to the season. The below precipitation map (World Ag Weather) as a percentage of normal over the past 30 days plus the below soil moisture map (National Centres for Environmental Prediction) help to highlight the below average rains resulting in reports of early signs of drought stress. Crops are said to be shorter and thinner than this time last year, but also two weeks behind where expected, which whilst not likely to result in a catastrophe and points to a reduction in yield potential.
By Alex Poon, ADMIS Hong Kong & Kevin Yang, ADMIS Shanghai Representative Office
The following is an overview of the Chinese and Asian economic, political and crop situations as of 22 May, 2018. This report is intended to be informative and does not guarantee price direction.
In April, the CAIXIN China manufacturing PMI continued its slight growing trend in the past 11 months, coming in at 51.1, a little higher than last month’s 51.0. New orders kept expanding, but at the slowest pace in seven months. New export orders posted its first negative growth since November 2016, while new orders kept growing, suggesting that the dependence on domestic demand is increasing. Factories employment continued shrinking. Some job positions weren’t filled after workers left voluntarily, which caused backlog of works climbing. In the meantime, official manufacturing PMI slightly fell 0.1% to 51.4.
China’s consumer inflation eased in April. CPI increased 1.8% year-on-year in April, compared to a 2.1% increase in March. The decline in food prices, especially pork, which fell 16.1% from last year, was the biggest drag. On the industrial side, PPI growth ended its downward circle for five months, increasing 3.4% year-on-year. But on a monthly basis, it still slipped .2%. Looking forward, as prices of commodities especially crude oil keep climbing, the PPI is expected to climb in months to come, but will stay at a modest pace.
As holiday factors that twisted trade data faded, China’s exports restored growth in April. Exports in dollar-dominated terms increased 12.9% year-on-year, while imports went up 21.5%, compared to last year, leaving the country with a monthly trade surplus at $28.78 billion. In the context of a possible trade war between China and the U.S., the trade surplus from the United States surged 43.8% from last month to $22.19 billion. In the first four months of 2018, China collected an $80.4 billion trade surplus from America. Imports side, significant increases in crude oil, refined oil and iron ore are the top three contributors to the robust gain.
Concerns about the possible tariff on U.S. soybeans, China’s soybean imports in April experienced a decline, down by 13.7% compared to last year to 6.92mmt, significantly lower than expectations. Soybean imports have been going down for three months in a row on a yearly basis. Soybeans imports amounted to 26.49mmt in the first 4 months of this year, 3.8% less than last year. In the meantime, as the crushing margin remains lucrative, Chinese buyers proactively purchased Brazil soybeans. China National Grain & Oils Information Center estimated that the arrival of soybean shipments will reach 9.5mmt and 9.0mmt in May and June respectively.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
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