Free Commentary

By: Dan Hueber –

Grain and soy markets have begun the new week with a slightly positive bias.  By no means would this strength be deemed “impressive” but it is certainly an improvement over the WWE worthy smack down that was experienced when we began trade last week.  Recognition that we do have problem areas around the country appear to be providing some support but one has to suspect that the fact that funds piled into larger short positions last week, particularly in the bean complex, could be making some traders ill at ease with a monthly report just a few days ahead not to mention an entire growing season.

It is interesting to note that so often we refer to “traders” when discussing who is doing what in the markets, which probably harkens back to the day of floor traders, who too many in the ag community often thought of as the “enemy.”  I cannot count how many times over the years that I have heard comments such as “those d*mn traders are just out to harm us, and they don’t even know how many ears are on a stalk of corn” or “they just don’t know how bad conditions really are out here.”  Be that as it may, the way things are evolving the “them” that people cast their anger towards when markets are not going the way you think they should are increasingly becoming AI.  “Blackbox” or computer directed trading has long been a staple in non-commodity markets but continue to grow in volume in the physical commodity realm as well.  According to the CME, the volume percentage of automated trading in grain and oil seed markets grew from 39% to 49% between 2012-14 to 2014-16, in livestock increased from 32% to 46% in the same period, metals jumped from 46% to 54% and crude oil went from 54% to 63%.  Understandably, this is raising concerns in the industry as well as with regulators as indeed not all but many computer systems could care less about crop conditions or supply-demand reports when making decisions about what and when to trade.  I would like to believe that ultimately, the underlying fundamentals would prevail but particularly when you are dealing with a finite commodity, that can be heavily influenced by weather, it could lead to potentially extreme volatility and some unrealistic prices levels before that occurs.

One piece of fundamental news worth noting this morning is that the Russian Ag Ministry has downgraded the 2017 crop forecast due to less than favorable weather.  They have now projected a total grain crop between 100 and 105 MMT from the previous estimate of 110 MMT.  While not necessarily a significant change just yet, with less than ideal conditions in France and the US, not mention the low acreage here in this country, it would appear that we will be whittling away on the global supplies, which should be long-term supportive.

Speaking of supply, the June supply-demand reports will be issued on Friday and estimates are rolling in.  Bloomberg released the estimates from their industry survey which came in as follows; 2016/17 ending stock for corn at 2.284 billion, beans at 434 million and wheat 1.158 billion.  2017/18 carryout is projected at 2.072 for corn, 513 million beans, and 910 million wheat.  The US All Wheat estimate sits at 1.823 billion, and in South American we have Brazil corn and beans projected to be 96.6 MMT and 112.3 MMT respectively and Argentina at 40 MMT for corn and 57.1 MMT for beans.