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Commodities Markets Report. Week 11 2023

Global weather review

• La Nina conditions are weakening but the effects of La Nina will remain for a few more weeks.
• That model suggested that neutral ENSO conditions will dominate in March, April, and May. Neutral ENSO conditions are interpreted as no La Nina or El Nino conditions.
• The model predicts the development of El Nino this summer.
• We believe the model is still too aggressive with the start of El Nino, but such an event could evolve in Q3 of 2023.
• This weather pattern is bearish for grains in the US (corn and wheat), Indian and Chinese rice, Indian wheat and sugar, and Australian wheat.
• Harmattan wind season which brings hot and dry weather is over in the West Africa region. More rain is expected in the region for the coming 3-4 weeks.
• In Europe dry but colder weather was generally beneficial for winter crops but accentuated short-term rainfall deficits in the west.
• In Australia warm and dry weather elsewhere aided harvesting of the earliest maturing summer crops.
• In Argentina unseasonably hot weather renewed stress on immature soybeans.

Dollar Index

Commodities Index

Cocoa: Sell

• Cocoa prices on Thursday traded sideways on USD weakness.
• ICCO forecasted 2023 global cocoa production to increase +4.1% y/y to 5.017 MMT, global cocoa grindings to fall -0.6% y/y to 5.027 MMT.
• In January US Confectioners Association reported that Q4 cocoa grindings decreased -8.1% y/y to 107,130 MT.
• European Cocoa Association Q4 grindings fell -1.7% y/y to 359,577 MT.
• Cocoa Association of Asia reported that Q4 grindings dropped -0.2% y/y to 230,806 MT.
• Ghana expects a 76% rise in cocoa beans for the current crop season despite bad weather conditions.
• Harmattan wind season which brings hot and dry weather to the West African region is over. Rainfall should be 10-30 MM above normal for the next 4 weeks.
• Weather during the spring of the La Nina to El Nino transition year tends to offer good rainfall and little reason for prices to rally.

Cocoa: Weather outlook

Ivory Coast saw more than the average amount of rain, where as Ghana saw a moderate rain. More rain is expected in the region for the next 3-4 weeks since the Harmattan wind season is over.

The Harmattan is a season in West Africa that occurs between the end of November and the middle of March. It is characterized by the dry and dusty northeasterly trade wind, which blows from the Sahara over West Africa into the Gulf of Guinea.

Cocoa: Price chart

Wheat: Sell

• On Thursday wheat futures closed a little lower.
• Global production is raised by 5.1 million tons to 788.9 million primarily on increases for Kazakhstan, Australia, and India.
• Production estimates for all three countries are raised on updated government data. Wheat production in Kazakhstan is now forecasted at 16.4 million tons, 2.4 million higher than last month, and the largest harvest since 2011/12.
• World trade is raised by 1.0 million tons to 213.9 million as increases for Kazakhstan, Australia, and Brazil more than offset decreases for Argentina and India.
• Global ending stocks are lowered by 2.1 million tons to 267.2 million, as smaller stocks for China more than offset increases for Argentina, Kazakhstan, and Australia.
• Weather in major wheat-producing regions right now is mostly favorable as necessary moisture has arrived after an extended period of dryness. This is due to transition to El Nino which is bearish for most of grains.
• Geopolitical tension between Russia and Ukraine is now a bearish factor since parties are likely to agree on the extension of the grain deal.

Wheat: Weather outlook

In EU colder and drier weather was overall beneficial for winter crops but accentuated short-term rainfall deficits in the west. Little to no rain was reported across Europe save for southeastern growing areas, favoring seasonal fieldwork but heightening short-term rainfall deficits in Spain, France, and England; most of these latter crop areas have been completely dry over the past 30 days. While winter crops have broken dormancy across central and western Europe, 7-day average temperatures well below 5°C during the past week indicated wheat, barley, and rapeseed added little to no vegetative growth.

In Australia, Southern Queensland, a concentrated area of rain (10-25 mm or more) at the end of the week benefited sorghum that had been sown later in the planting window. These later-maturing crops reportedly had been showing some signs of stress due to recent dryness. More isolated showers (less than 10 mm) were observed across the New South Wales and Queensland border region. Wheat sowing season will start in May it is critical that necessary moisture arrives on time, right now there is no weather associated risk.

Unseasonably hot weather renewed stress on immature crops in central Argentina, after only a brief respite from the poor growing conditions that have dominated the region for most of the season. As unseasonable dryness intensified from the prior week, all agricultural delegations in La Pampa, Buenos Aires, and from Córdoba eastward into Uruguay recorded daytime highs ranging from 35 to 40°C on multiple days. In contrast, locally heavy rain (25-50 mm) overspread northern farming areas during the latter half of the week, briefly lowering temperatures to more seasonable levels in cotton areas in and around eastern Chaco.

Mostly dry, unseasonably mild weather prevailed across winter crop areas of eastern and southern China. Reported rainfall was generally less than 10 mm and limited to the upper Yangtze Valley and southern provinces. Temperatures averaged up to 5°C above normal in some locales, promoting an early spring green-up of wheat. Most winter crop areas experienced winter drought, limiting available moisture for crops exiting dormancy and necessitating favorable spring rainfall.

Overall, spring planting season this year is less dry compared to last year due to transition from La Nina to El Nino. In most parts of wheat-producing regions spring rain/snow provided the necessary moisture for good crop promotion. Transition to El Nino brings more moisture to the most of key wheat-producing regions.

Wheat: Price chart

Soybean Meal: Buy

• Soybean meal futures closed a little higher on Thursday as global supply tightened.
• Global 2022/23 oilseed supply and demand forecasts include lower production, crush, and stocks. Global oilseed production is reduced 6.8 million tons to 629.9 million, mainly on lower soybean production for Argentina.
• Soybean production for Argentina is lowered 8.0 million tons to 33.0 million on dry and hot weather conditions. Uruguay soybean production is also lower by 0.2 million tons to 2.1 million.
• Global 2022/23 oilseed crush is lowered 3.3 million tons to 526.3 million, mainly on a slower-than-expected soybean crush pace for China and lower available soybean supplies for Argentina.
• Lower Argentina vegetable oil exports are offset by higher shipments of palm oil from Malaysia and sunflowerseed oil from Turkey, Russia, and Ukraine.
• Global soybean ending stocks are lowered 2.0 million tons to 100.0 million, with lower stocks for Argentina, Brazil, the United States that are partly offset by higher stocks for China.

Soybean Meal: Weather outlook

Argentina soil moisture remains dry for good soybean crop development. Unseasonably hot weather renewed stress on immature soybeans in central Argentina, after only a brief respite from the poor growing conditions that have dominated the region for most of the season.

In Brazil widespread showers benefited summer crops throughout nearly all major production areas, though lingering pockets of dryness prevented all locations from receiving the much-needed moisture. Overall weather was favorable for soybean crop collection.

Soybean Meal: Price chart

Special Market Situation

SMS - refers to a set of market indicators (COT data) that indicates major market turnarounds. For example, if market is oversold it is likely moving average will go up, if market is overbought downward movement is expected.

Special situation trade setups are selected based on 10+ years of trading experience, but there are no guarantees that any trade will prove profitable or will not produce a loss. A trade may require more than one entry attempt. You alone are responsible for your trading decisions. It is up to you to control the risk by using stop losses.

This special situation does not claim immediate practical application. Actionable buy and sell signals are published on our website charts every week.

You can get more information here.

Wheat

Commercial insiders hold their largest net long position in 2.5 years. Funds are holding their largest net short total in 3.6 years, tagging wheat as speculatively oversold.

Canadian $

Commercial insiders held their largest net long position in 3.7 years and funds held their largest net short total in the same period, ranking the Loonie as speculatively oversold.

Natural Gas

Commercial insiders hold their largest net long position in 2.8 years and funds hold their largest net short total in the same period, categorizing natural gas as speculatively oversold.

RBOB Gasoline

Commercial insiders held their largest net short (most bearish) position in 1.9 years. Funds held their largest net long position in 2.0 years

Lean Hogs

Funds were holding their largest net short total in 4.6 years, labeling hogs as speculatively oversold.

Orange Juice

Funds held their largest net long position in 6.1 years, noting OJ as speculatively overbought.

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