Agricultural Commodities Report 6/1/17

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Includes: ADZ, AGA, AGF, CAFE, CANE, COW, DAG, DBA, DIRT, FUD, JJA, JO, LSTK, RJA, SGAR, SGG, SOYB, TAGS, UAG, UBC, USAG, WEAT, WEET
by: Hedged Equity
Summary

Global wheat supplies for 2017/18 are projected to decline slightly, coming in at 737.8 million tons. This is the second largest total on record.

U.S. rice production for 2017/18 is down dramatically from 2016/17, projected at 201.0 million cwt, a decrease of 23.1 million cwt year over year.

Soybeans global production levels for 2017/18 have decreased 3.4 million tons to 344.7 million tons, due to lagging production in the U.S., Brazil and Paraguay.

Futures contract identification information, synopsis, relevant market data and weekly charts are provided for the following Agricultural commodities:

  • Wheat
  • Rice
  • Soybeans
  • Coffee
  • Sugar
  • Live Cattle
  • Lean Hogs

The information used in this report pertains to the trading year of 2016/17 as well as projections for 2017/18. Exhibited data is derived from the following sources:

Product: Wheat

Market: CME Globex

Classification: Grains

Description: Chicago SRW Wheat, Kansas City HRW Wheat

Symbol: ZW, KE

Front Month Contract: July 2017 (ZWN7)

Overview

The global trade of wheat futures is primarily focused upon the Soft Red Winter (SRW) and Hard Red Winter (HRW) strains. For the period of 5/1/17 to 6/1/17, trading volume of the Chicago SRW Wheat futures focused upon the July 2017 contract, accounting for 70% of all traded volume. SRW Wheat has entered a consolidation phase, trading within a tight range between 442'4 and 420'2 for the majority of May.

Wheat Market Fundamentals

May typically shows relative strength for Wheat in the futures market, but continued decline in spot value. After the weakness shown in April, Wheat futures have undergone a bit of a rally, and have subsequently entered a consolidation phase. Global wheat supplies for 2017/18 are projected to decline slightly, coming in at 737.8 million tons. This is the second largest total on record.

Global imports are estimated to be at record levels for the fifth straight year. Ending stocks for 2017/18 are projected to be up 2.9 million tons to 258.3 million tons. U.S. wheat supplies for 2017/18 are estimated to decrease 9% on lower production, somewhat as a result of robust beginning stocks. Production for 2017/18 is projected at 1,820 million bushels, down 500 million from 2016/17. The drop in production is attributed to lower yields as a result of reduced planted area. For the period 5/1/17 to 6/1/17, SRW Wheat futures have experienced sustained selling from a high of 461'4 established on 5/2. Rebound and compression between the low of 420'2 on 5/16 and the swing high of 442'4 made on 5/22. Spot prices for St. Louis Soft No. 2 Red closed at 4.1700 per bushel on 6/1/17, down from 4.8800 one year ago to the day.

Technicals: Weekly chart for SRW Wheat Futures, 6/2/17

Product: Rice

Market: CME Globex

Classification: Grains

Description: Rough Rice

Symbol: ZR

Front Month Contract: July 2017 (ZRN7)

Overview

Although a worldwide staple, rice (quantified in hundredweight "cwt") is a lightly traded commodity on U.S. futures markets. For the period 5/1/17 to 6/1/17, the Rough Rice futures contract for July 2017 was the dominate trade. Currently, a near 50% volume split is occurring as the July 2017 contract rolls over to September 2017. May has seen strength in the Rough Rice market, more than making up for April's weakness.

Rice Market Fundamentals

Global rice stocks for 2017/18 are projected to come in at 599.9 million tons, a growth of 2.6 million tons from 2016/17. Global rice production for 2017/18 is lowered slightly from 2016/17, coming in at 481.3 million tons. Ending stocks come in at 119.8 million tons, up marginally from 2016/17. Global rice consumption for 2017/18 is forecasted to be a record, projected at 480.1 million tons, up 2.6 million tons from 2016/17. U.S. rice production for 2017/18 is down dramatically from 2016/17, projected at 201.0 million cwt, a decrease of 23.1 million cwt year over year. Ending stocks are estimated to be down 21% from 2016/17, a total of 38.1 million cwt.

U.S. rice exports are projected down for 2017/18, due to enhanced competition from Egypt and Australia. For the period 5/1/17 to 6/1/17, July 2017 Rough Rice futures have rallied from an open of 948.5 on 5/1 to a high of 1124.5 established on 5/31. The heavy buying likely a result of USDA projections for 2017/18, marking global consumption at record levels, with U.S. production lagging. Spot prices for Long Grain Milled No. 2 Arkansas closed at 20.63 on 6/1/17, down from 22.13 one year ago.

Technicals: Weekly chart for RR, current as of 6/2/17

Product: Soybeans

Market: CME Globex

Classification: Oilseeds

Description: Soybean futures

Symbol: ZS

Front Month Contract: July 2017 (ZSN7)

Overview

Soybeans are one of the most heavily traded agricultural commodities on the futures market. For the period of 5/1/17 to 6/1/17, daily volumes have been primarily directed at the July 2017 contract. Currently, the July 2017 contract trades near 70% of aggregate daily volume. Worth noting is the November contract trading with regularity, representing 20% of daily traded volume. Units of measure are bushels, tons and metric tons, with yield being calculated as Bu/Acre, or bushels per acre.

Soybean Market Fundamentals

Typically, soybeans exhibit strength during the month of May in both the spot and futures market. However, this year May pricing has established yearly lows, approaching 2016's lows and levels seen in late 2015. Global production levels for 2017/18 have decreased 3.4 million tons to 344.7 million tons, due to lagging production in the U.S., Brazil and Paraguay. Canada, China and Bolivia expect an increase in production levels for 2017/18. Global exports for 2017/18 have been revised upward 5.0 million tons to a total of 149.6 million. Global soybean stocks for 2017/18 have been decreased 1.3 million tons, led by Brazil and Argentina exhibiting a decrease of 2.6 million tons combined. U.S. soybean crush for 2017/18 is projected at 1,950 million bushels, an increase of 25 million from 2016/17. U.S. soybean meal exports are estimated to be down marginally, coming in at 12.4 million short tons for 2017/18.

U.S. soybean exports are up 100 million bushels from 2016/17, coming in at 2,150 million bushels. U.S. ending stocks for 2017/18 are projected to be 480 million bushels, up 45 million from 2016/17. Spot markets for No. 1 yellow soybeans in Illinois closed at $8.8900 on 6/1/17. This price is down from $11.1700 one year ago to the day. For the period 5/1/17 to 6/1/17, July 2017 Soybean futures pushed lower, trading from a high of 989'0 established on 5/10 to a low of 909'4 on 5/31. Weakness in the market has July soybeans potentially testing 2016's lows.

Technicals: Weekly Chart Soybeans 6/2/17

Product: Coffee

Market: ICEUS

Classification: Softs

Description: Coffee "C" futures

Symbol: KC

Front Month Contract: July 2017 (KCN7)

Overview

Coffee C is one of the featured commodities available for trade on the Intercontinental Exchange (NYSE:ICE). It is the global benchmark for Arabica coffee, with prices being a function of the warehoused supply of exchange-grade beans from any one of 20 countries of origin. The July 2017 contract is currently dominant, accounting for roughly 60% of the average daily traded volume. USDA statistical reports for coffee are released on a biannual basis (December 16, 2016) instead of monthly, leaving a degree of opacity to supply and demand levels.

Coffee Market Fundamentals

Historically, May is the strongest month for coffee pricing in both the futures and spot markets. Yearly highs are often set, marked by active participation. This year falls outside of that categorization, with the Coffee C futures contract trading at yearly low levels. World coffee production for 2016/17 is projected to be 3.7 million bags greater than 2015/16. However, record levels of output for Brazil Arabica have been largely offset by low Robusta production in Vietnam and Indonesia. June 2016 projections of global production have been revised downward 300,000 bags to 153 million, with ending stocks for 2016/17 lowered 600,000 bags to 34.8 million, a five-year low.

Global consumption for 2016/17 is forecasted at a record 153.3 million bags. As of October 2016, the EU, Japan, Russian Federation, Norway and Switzerland led all non-U.S. importers. Report issued by Goldman Sachs has cited global economic growth of 3.5% for 2017 being a catalyst for increased coffee consumption. Growth in emerging markets led by China is projected to spike global demand. Recent concerns over the growing impact of the berry borer beetle threaten global coffee production. Coffee producing regions such as Hawaii, Papa New Guinea, Brazil and central Africa. The U.S. is the second largest global importer of coffee beans. Forecasts for 2016/17 have been revised down 300,000 bags to 44.4 million. U.S. consumption for 2016/17 is projected to gain 200,000 bags to 25.3 million. Ending stocks are to remain relatively unchanged at 6 million bags.

From 5/1/17 to 6/1/17, July 2017 Coffee C futures have posted a yearly low of 128.60 on 5/26 after initially trading with relative strength, establishing a high of 137.00 on 5/4. As of now, July Coffee C futures are challenging the key technical level of 125.00 defined in early 2016. 6/1/17 spot prices for Colombian New York coffee came in at $1.4970 per pound. This is up from $1.4269 per pound on the same date year over year.

Technicals: Weekly chart for Coffee C futures, 6/1/17

Product: Sugar

Market: ICEUS

Classification: Softs

Description: Sugar No. 11 Futures

Symbol: SB

Front Month Contract: July 2017 (SBN7)

Overview

The global trade of raw sugar centers around the Sugar No. 11 futures contract for trade on the Intercontinental Exchange. For the period 5/1/17 to 6/1/17, Sugar No. 11 futures focused trade upon the July 2017 contract. Currently, the Sugar No. 11 July 2017 contract is trading over 2/1 volume with respect to the October contract, and in the neighborhood of 62% of aggregate daily volume. Worthy of note is the interest in the October contract, regularly trading over 20,000 lots daily. The USDA report for the sugar industry is released on a biannual basis in May and November. The monthly WASDE report provides industry specific updates for the U.S. and Mexico.

Sugar Market Fundamentals

May typically marks a time of consolidation for both the futures and various spot markets, with price remaining in the upper quadrant of the yearly pricing range. This year breaks those trends, with sugar futures pushing yearly lows amid a weak market structure. Global production for 2016/17 remains unchanged from November 2016's forecast at 170.9 million tons. Brazil and Thailand are the leading gainers while India has cut production by 2 million tons on lower yields. Global production for 2017/18 is up 9 million tons to a record 180 million, led by gains in Brazil, China, the EU, and Thailand.

Global exports for 2016/17 have increased 1.8 million tons to 57.7 million over November 2016's estimates. Brazil has raised exports 1.0 million tons to 28.2 million on robust supply, and Ukraine has increased exports by 340,000 tons due to higher production. U.S. production for 2017/18 is estimated to increase slightly to 7.9 million tons. Ending stocks and consumption are projected to grow fractionally. U.S. sugar supplies for 2016/17 have been reduced 65,000 short tons raw value (STRV) to 13.957 million. U.S. sugar imports for 2017/18 are projected to rise considerably by 662,000 tons to a record 3.5 million. Total use for 2016/17 remains strong, and raised 100,000 STRV to 12.480 million STRV. For the month of May, July 2017 No. 11 Sugar futures established fresh yearly lows amid sustained selling. Trading directionally downward from a monthly high of 16.42 on 5/23, No. 11 Sugar futures are in a heavy downtrend, eventually posting a definitive yearly low of 14.20 on 6/1. Yearly lows established in 2016 and 2015 are likely to come into play in the near future.

Technicals: Weekly Chart for Sugar No. 11 Futures, dated 6/1/17

Product: Live Cattle

Market: CME Globex

Classification: Livestock

Description: Live cattle futures

Symbol: LE

Front Month Contract: August 2017 (LEQ7)

Overview

The trade of live cattle futures provides producers, consumers and speculators an avenue by which to hedge production risk or speculate upon future pricing fluctuations. For the period of 5/1/17 to 6/1/17, live cattle futures trade centered around the August 2017 contract. Currently, live cattle is trading the August 2017 contract at a 2/1 ratio over both the June and October contracts. Data for global production of beef is taken from the USDA biannual livestock report for April 2017; current updates also referenced using the Weekly USDA Export Sales report.

Cattle Market Fundamentals

Historically, the futures pricing of live cattle for May enter rotation while spot pricing exhibits yearly highs. May 2017 has been a bit of an outlier, as the live cattle market has been greatly influenced by the lifting of China's import ban on U.S. beef. Global production of beef and veal for 2017 is projected to grow less than 2% to 62 million tons (MT), led by gains in the U.S., Brazil, and Argentina. Global exports for 2017 are to grow 2% to 9.6 MT. Global exports for 2017 are to grow 2% to 9.6 MT. The 2017 international consumption levels in East Asia led by China are projected to drive global demand. Global exports of beef reported 5/25/17 measured 14,800 MT, up 9% from the previous week and up 11% from the four-week average.

Primary destinations are Japan, Hong Kong, South Korea, Mexico and Canada. International net sales of 12,100 MT reported 5/25/17 were up 69% from the previous week and 15% from the prior four-week average. Japan, South Korea, Mexico, Hong Kong and Taiwan led the way, with South Africa leading decliners. U.S. production for 2016/17 is forecast to be up over 5% to 12 million tons, a nine-year high. Exports are expected to increase 43,000 metric tons, with shipments to Japan and South Korea being prime destinations. The trade deal between the U.S. and China to resume direct importation of U.S. beef to the mainland has marked a fundamental change in the cattle market.

U.S. beef will begin entering Chinese markets in July 2017, for the first time since 2003. Trade of August 2017 live cattle futures for the period of 5/1/17 to 6/1/17 have remained strong. After posting a yearly high of 127.500 on 5/4, live cattle futures retraced to a monthly low of 116.775 on 5/16, well above 38% of April's rally. As of 6/1, live cattle futures are trading with strength, testing the yearly high. The 6/1/2017 spot prices of choice and select beef (600-900 pounds) came in at 217.46 and 191.56 respectively. Both values are up year over year from 200.06 and 181.02.

Technicals: Weekly Chart of Live Cattle, 6/2/17

Product: Lean Hogs

Market: CME Globex

Classification: Livestock

Description: Lean Hog futures

Symbol: HE

Front Month Contract: July 2017 (HEN7)

Overview

The trade of pork products is a largely international undertaking, with China, Brazil, Russia and the United States being the key players. For the period of 5/1/17 to 6/1/17, the July 2017 lean hog futures contract has become the dominant contract. Currently, the lean hogs futures contract is experiencing some volume dilution, with the July 2017 contract trading at a 6/5 clip over the August 2017 contract. Industry-specific USDA reports are released quarterly in March, June, September and December. Current updates also referenced using the Weekly USDA Export Sales report.

Pork Market Fundamentals

The pricing of lean hogs during May in both the futures and spot markets tend to be a mixed bag, showing both strength and weakness. For May 2017, lean hog futures have shown robust strength, trading directionally upward, establishing yearly highs off of the lows made in April. Global production for 2017 is projected to be up 1% led by increased levels in the U.S., Brazil and Russia. China is the top global producer, but new environmental regulations will prompt a decline for 2017. Global exports will gain 5% for 2017, due to larger supply and increased demand from the EU and China. Global imports will fall to 5% level, led by a drop in demand from the Russian market. Global net sales reported 5/25/17 came in at 13,800 MT, down 22% from the previous week, and 15% from the previous four-week average.

Global exports reported on 5/25/17 were 24,300 MT, up 11% week over week, and posted an increase of 6% from the prior four-week average. Primary export destinations were Mexico, Japan, South Korea, China and Canada. U.S. production for 2017 is forecast to be up 5%, anticipating increased global demand. Exports are also expected to increase 8% to a record 2.6 million tons. Slumping prices expected to boost shipments to Mexico, South Korea and Colombia. U.S. domestic consumption for 2017 is expected to increase marginally by a value of 123 MT, mostly attributable to projected lower pricing.

For 2018, the USDA forecasts declining hog pricing due to strong supply. This is predicted to lead to increasing exports to satisfy global demand. For the period 5/1/17 to 6/1/17, July 2017 lean hog futures have undergone a sustained rally. Initial buying from a monthly low of 74.700 made on 5/1 carried lean hog futures to a monthly and yearly high of 83.525 established on 6/1. The May rally marked a near 20% growth in futures pricing from April's low of 69.225. 6/1/17 spot prices for Iowa-South Minnesota hogs settled at $74.56 cwt, down slightly from last year's price of $74.86 year over year to the day.

Technicals: Weekly Chart for Lean Hogs, 6/2/17

This article contains general information and does not represent trading advice.

Disclosure: I am/we are long COFFEE, RICE, WHEAT & SOYBEANS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.