Commodities Markets Report. Week 2 2023

Global weather review

  • La Niña continues in the tropical Pacific, but is slowly weakening. However, while ocean temperatures have warmed in recent weeks, atmospheric indicators are largely unchanged, remaining at La Niña levels.
  • Models suggest La Nina will not weaken in Q1 and probably will fall into La Nada in summer with further dip into El Nino. La Nina and La Nada present in Summer implies drier than normal growing season in Americas.
  • The Indian Ocean Dipole (IOD) is neutral and has little influence on Australian climate while the monsoon trough is in the southern hemisphere (typically December to April).
  • In Europe Record-setting warmth overspread the continent, with rain in the north and west contrasting with dry conditions across the Mediterranean Basin.
  • In Australia generally tranquil weather favored winter crop harvesting and summer crop development.
  • In Argentina Dry, progressively hotter weather stressed emerging summer grains and oilseeds.
  • In Brazil widespread showers benefited corn in central and northeastern Brazil, but pockets of dryness lingered in southern farming areas.
  • Wet weather continued in SE Asia in the traditionally wet eastern and southern portions of the region, favoring rice and other seasonal crops.

Dollar Index

Commodities Index

Wheat: Buy

Wheat prices find bullish support on the back of lower global supply and lower stocks, global rice shortage and geopolitical tensions around key suppliers.

  • Wheat futures closed a little lower on Wednesday.
  • The global wheat outlook for wheat is for reduced supplies, lower consumption, increased trade, and reduced stocks.
  • Supplies are lowered 2.1 million tons to 1,056.9 million on reduced production for Argentina and Canada that is only partly offset by higher Australia production.
  • Global consumption is reduced 1.6 million tons to 789.5 million, mainly on lower feed and residual use by the EU and Ukraine.
  • Escalation of Russian/Ukraine conflict is huger geopolitical factor for wheat prices.
  • The sever winter kill event in the US along with one of the worst rated crops in history in dormancy and the prospects for an eastern US wheat belt based dry spring for wheat is bullish for wheat prices.
  • Global rice shortage especially in Asia creates additional demand for wheat.

Wheat: Weather review

In Northern Hemisphere crop harvesting season is over therefore there is no weather associated risk.

Australia is Generally tranquil weather favored winter crop harvesting and summer crop development.

Argentina was dry, progressively hotter weather stressed emerging summer grains and oilseeds, harvesting of wheat was 94% completed.

Widespread showers benefited crops in central and northeastern Brazil, but pockets of dryness lingered in southern farming areas.

Wheat: Price Chart

Corn: Buy

  • Corn futures closed a lower on Wednesday.
  • Global corn outlook is for lower production, greater trade, and smaller stocks relative to last month.
  • Global production is forecast down 5.9 million tons to 1,453.6 million.
  • Corn production is reduced with forecast declines for Ukraine, Russia, the EU, and Vietnam.
  • Global corn stocks, at 298.4 million tons, are down 2.4 million. Corn ending stocks are down, reflecting reductions for Ukraine, Paraguay, Vietnam, and Mexico.
  • Ongoing drought in Argentina remains a factor posing a threat to future corn crops. Corn vegetative health is worst in Argentina since 1980ties.
  • Good weather in Brazil benefits development of crops in major producing areas and may overweight corn shortage from Argentina.
  • Prices are likely reaching intermediate highs by mid-January
  • Corn prices find bullish support on the back of lower global supply, lower ending stocks and ongoing concerns over drought in Argentina one of the largest corn producers globally.
  • Amid pace of international trade, lower feed /residual use, good weather in Brazil that promises good crops are bearish factors for corn.

Corn: Weather review

In the US all corn had already been collected so the weather here is not a factor.

In China also corn harvest season is over, there is no weather associated risk.

Sunny, increasingly warm weather dominated major farming areas of central Argentina. Nearly all locations in Buenos Aires and La Pampa, along with southern delegations in Córdoba, Santa Fe, and Entre Rios, were completely dry. Furthermore, temperatures rose to stressful levels by week’s end, with daytime highs reaching the upper 30s (degrees C) regionwide on several days. While hastening drydown and harvesting of winter grains, the dryness and heat reduced soil moisture for germination of summer grains and oilseeds and stressed emerged crops. In contrast, moderate to heavy rain (10-50 mm) provided timely moisture for cotton and other summer crops across northern Argentina, although daytime highs reached the lower 40s at week’s end, maintaining high evapotranspiration rates and soil moisture losses through evaporation. According to the government of Argentina, corn was 77% planted, respectively, as of December 29, still lagging last year’s pace for both crops.

A drying trend persisted over large sections of southern Brazil, where moisture remained limited for normal development of soybeans and first-crop corn. As in recent weeks, many locations from Mato Grosso do Sul southward recorded less than 25 mm with few days of measurable rainfall. Summer warmth (daytime highs often reaching the lower and middle 30s degrees C) compounded the impact of the dryness on diminishing soil moisture reserves. In Rio Grande do Sul, corn was 91% percent planted as of December 29, with 70 percent of the sown crop having reached reproduction. Rainfall totaling 25 to locally more than 100 mm spanned a broad area stretching from São Paulo and southwestern Minas Gerais northward, extending westward through Goiás and Mato Grosso, where highest daytime temperatures stayed in the upper 20s and lower 30s.

China rice harvesting season is over therefore there is no weather associated risk.

India has good rice harvest weather dry across most of the peninsula.

Corn: Price Chart

Rice: Buy

Lower global production, lower ending stocks, Asian rice shortage and historical drought in Latam puts bullish pressure on rice prices

  • Rice futures closed lower on Wednesday.
  • The global outlook has slightly lower supplies, less consumption, increased trade, and slightly reduced ending stocks compared with last month.
  • Supplies are lowered 1.2 million tons to 685.6 million, primarily on lower beginning stocks for Vietnam and Thailand and reduced production in Australia and the EU.
  • The global consumption forecast declines 0.9 million tons to 516.9 million, primarily on a reduction for India.
  • Trade is forecast 0.9 million tons larger to 53.7 million tons, mainly on increased exports for India, Thailand, and Vietnam.
  • Global ending stocks are reduced by 0.4 million tons to 168.6 million, the lowest since 2017/18.
  • The first Asian rice shortage since 2007/2008 is well underway from last years poor production from lack of fertilizer access and the worst drought in 500 years in China. Asian rice prices have gone parabolic to the upside and US prices have started to follow.
  • Historical 1 in 50-year drought in Southern Brazil/Uruguay/Paraguay/Argentina a block that exports considerably more rice than the US will not be able to do so in 2023 putting further pressure on already tight US rice stocks by increasing US export demand at a time that Asian rice prices are running away to the upside.

Rice: Price Chart

Sugar: Sell

Sugar is bearish on the back of larger India and Brazil production, global sugar surplus.

  • Sugar futures closed lower on Wednesday.
  • Sugar prices Wednesday dropped to 3-week lows on a plunge in crude oil prices of more than -5%.
  • Weakness in crude prices cuts ethanol prices and may boost Brazil's sugar mills to crushing more sugar rather than ethanol, thus boosting sugar supplies.
  • India Sugar Mills Association reported sugar production from Oct-Dec rose +3.7% y/y to 12.1 MMT.
  • In October, ISMA forecasted that India's sugar production to climb +2% y/y to 36.5 MMT as Indian farmers boosted their planted cane acreage by +5.4% y/y to 5.6 mln hectares.
  • Strong sugar exports from India are bearish for prices after India 2021/22 sugar exports jumped +57% y/y to a record 11 MMT.
  • Brazil Conab hiked sugar production estimate to 36.4 MMT from an Aug estimate of 33.9 MMT.
  • ISO projected that the 2022/23 global sugar market would be in a surplus of +6.2 MMT.

Sugar: Weather review

Sugar: Price Chart

Orange Juice: Sell

Seasonality, good Brazil weather and lower demand puts downward pressure on JO prices and therefore bearish for prices.

  • JO futures closed higher on Wednesday.
  • Overall OJ market is trading the tightest supplies in the market as we speak and should begin to reprice lower as seasonal demand weakens, US imports from an improved Brazil production stabilize US cold storage stocks and US demand continues to crash.
  • Great weather in Brazil prospects 2023 production very good indeed.
  • There is no weather associated threat in Florida, weather is good for orange juice harvest.
  • All orange production in Florida was expected to fall to 20 million boxes in 2022/2023, a drop of 8 million (29%) from its October forecast. Despite lower production US demand for orange juice is low too.

Orange: Juice Price Chart

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About the author

Max Schulz is a professional futures and commodities trader. He is the founder and head of InsiderWeek. For many years he has been helping people achieve their financial goals by training them in futures trading.

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