Agricultural Commodities Report 7/12/17
Futures contract identification information, synopsis, relevant market data and weekly charts are provided for the following Agricultural commodities:
Wheat (ETF: WEAT)
Soybeans (ETF: SOYB)
Coffee (ETN: JO)
Sugar (ETN: SGG)
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:
Monthly USDA release dated June 9, 2017 Weekly USDA export sales report released June 29, 2017. Monthly USDA Sugar and Sweeteners Outlook for June 15, 2017. Commodity specific USDA biannual and quarterly reports dated 2017 Futures pricing data is courtesy of the CME Group and ICEUS online trader portals. The Wall Street Journal daily online cash price index for Tuesday, July 11, 2017 is referenced for current commodity spot pricing. Charting applications used are provided by the CME Globex and NinjaTrader (supported by Kinetic end-of-day data).
Market: CME Globex
Description: Chicago SRW Wheat, Kansas City HRW Wheat
Symbol: ZW, KE
Front Month Contract: September, 2017(ZWU7)
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 6/3/17 to 7/11/17, trading volume of the Chicago SRW Wheat futures rolled from the July 2017 to the September 2017 contract. Currently, the September 2017 contract is dominate, accounting for nearly 55% of traded volume. September SRW Wheat has experienced an explosive bullish breakout during the latter parts of June and early July, rallying from a swing low of 463’4 on 6/26 to a peak of 574’4 on 7/5.
Wheat Market Fundamentals
June typically marks the yearly bottom of wheat pricing, yet 2017 has shown robust strength in SRW futures and spot valuations. Global wheat supplies for 2017/18 have been raised 2.8 million tons, led by a spike in production from Russia of 2.0 million tons. Moderate decreases in output from the European Union and India mark a slowdown in what has been a strong wheat crop. Global exports for 2017/18 are slightly higher, led by increases from Argentina and Iran. Global Consumption is marginally lower, with ending stocks for 2017/18 projected up 2.9 million tons to a record 261.2 million tons. U.S. Wheat supplies for 2017/18 are estimated higher, based upon strong beginning stocks, production and imports. U.S. production for 2017/18 is increased by 3.8 million bushels to 1,824 million. U.S. ending stocks for 2017/18 have been raised by 10.8 million bushels to 924.3 million, with the 2017/18 season-average farm price increasing 5 cents coming in at $3.90 to $4.70 per bushel. For the period 6/3/17 to 7/11/17, September SRW Wheat futures have experienced breakout buying, from a monthly low of 440’2 on 6/5, to a peak of 574’4 established on 7/5. Currently, price levels remain bullish, having preserved the 38% retracement of the move, closing at 551’2 on 7/11. Spot prices for St. Louis Soft No. 2 Red closed at 5.5650 per bushel on 7/11/17, up from 4.4050 one year ago to the day. Technicals: Weekly chart for SRW Wheat Futures, 7/11/17
Market: CME Globex
Description: Rough Rice
Front Month Contract: September, 2017 (ZRU7)
Although a worldwide staple, rice (quantified in hundredweight “cwt”) is a lightly traded commodity on U.S. futures markets. For the period 6/3/17 to 7/11/17, the Rough Rice futures contract fully rolled from July to September 2017. Currently, September Rough Rice is the dominate contract trading 86% of volume. Worthy of note, the November contract is experiencing growing interest. June has seen Rough Rice grind northward, posting a yearly high for the September contract, at 1227.0 on 6/30.
Rice Market Fundamentals:
Seasonal trends in pricing for Rice futures and spot markets are largely variable due to the diversity of producer locales. June 2017 has exhibited a persistent strength to rice valuations, pushing yearly highs. Global rice stocks for both 2016/17 and 2017/18 are projected to grow moderately, led by a 1.5 million-ton increase to 108.0 million for 2016/17 India production. Global rice production for 2017/18 is lowered slightly to 481.0 million tons, down 2.1 million tons from 2016/17 levels. Aggregate production for 2017/18 remains the second highest on record. Ending stocks come in at 119.8 million tons, up marginally from 2016/17. Global exports for 2016/17 and 2017/18 have been raised .6 and .5 million tons led by strong output from India. U.S. rice production for 2017/18 is unchanged, with total supplies for 2017/18 being down 2.0 million cwt on lower beginning stocks. U.S. rice exports for 2017/18 are projected up 2.0 million cwt to 112.0 million. Ending stocks for 2017/18 are lowered 4.0 million cwt to 34.1 million. For the period 6/3/17 to 7/11/17, September 2017 Rough Rice futures have ground higher, from a monthly low of 1108.0 on 6/14 to a close of 1207.0 for 7/11. Spot prices for Long Grain Milled, No. 2 Arkansas closed at 21.50 on 7/11/17, down from 22.13 last year to the day. Technicals: Weekly chart for RR, current as of 7/11/17
Market: CME Globex
Description: Soybean futures
Front Month Contract: November, 2017 (ZSX7)
Soybeans are one of the most heavily traded agricultural commodities on the futures market. For the period of 6/3/17 to 7/11/17, daily volumes have exited the July 2017 contract in favor of the dominate November 2017 contract and the August/September 2017 contracts. Currently, 62% of traded volume resides on the November 2017 Soybean contract, with producer hedging practices the likely culprit for notable volumes in the August 2017, September 2017, March 2018 and May 2018 contracts. 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 trade near yearly highs during June and July in both the spot and futures markets. June of 2017 has been no different, experiencing considerable strength during the period of 6/26 to 7/11, posting a yearly high of 1047’0. Global production levels for 2017/18 have increased 3.3 million tons to 351.3 million, led by an increase of 2.4 million tons in Brazil. Global soybean beginning stocks for 2017/18 have been raised 3.1 million tons to 93.2 million. Global ending stocks for 2017/18 are projected up 3.4 million tons to 92.2 million due to higher beginning stocks and a .5 million reduction in exports from Argentina. U.S. Soybean supply and consumption estimates for 2017/18 remain unchanged from last month. Soybean crush for 2016/17 is reduced 15 million bushels to 1,910 million. U.S. Soybean ending stocks for 2016/17 are raised 15 million bushels to 450 million, and 2017/18 ending stocks are raised 15 million bushels to 495 million. Spot markets for No. 1 yellow soybeans in Illinois closed at $9.9500 on 7/11/17. This price is down from $10.9050 one year ago to the day. For the period 6/3/17 to 7/11/17 November 2017 Soybean futures broke-out to post yearly highs after spring weakness. From a low of 907’0 established on 6/23, price of November 2017 soybeans rallied substantially to close at 1041’6 on 7/11. Worthy of note is volume in assorted soybean contracts, likely a result of spread and hedging trade practices. Technicals: Weekly Chart Soybeans 7/11/17
Description: Coffee “C” futures
Front Month Contract: September, 2017 (KCU7)
Coffee C is one of the featured commodities available for trade on the Intercontinental Exchange (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 September 2017 for Coffee C futures is currently dominant, accounting for nearly 85% of traded volume. USDA statistical reports for coffee are released on a biannual basis, with the last release coming in June of 2017. The measurement standard for Coffee is 1 bag, which is equivalent to a 60 kg gross weight.
Coffee Market Fundamentals:
Historically, June is a month of bearish correction in both the futures and spot markets for coffee. However, 2017 has proven to be an outlier in the Coffee C futures market, with pricing currently remaining weak, just off of fresh yearly lows. World coffee production for 2017/18 is forecasted at 159 million bags, unchanged from 2016/17. Lower output from Brazil is mitigated by increased production levels in Mexico, Indonesia and Vietnam. World exports are expected to be stable, coming in at 111 million bags. Production for 2016/17 has been revised up from December’s report by 2.5 million bags to 159.1 million. Global consumption for 2017/18 is forecasted at a record 158 million bags. High levels of consumption are credited with global ending inventories to decrease by 34 million bags, the first decrease in five years. Global bean exports for 2016/17 have been raised 2.0 million bags from December’s report, totaling 110.7 million. Leading global coffee supplier Brazil’s 2017/18 Arabica bean output is projected down 5.1 million bags to 40.5 million. Downgrade is attributed to 2017/18 being an “off year” for the Brazilian production cycle. The U.S. is the second largest global importer of coffee beans, with forecasts for 2017/18 remaining largely unchanged at 26.0 million bags. U.S. consumption for 2017/18 is projected to spike by 500,000 bags to 26.0 million. Ending stocks are expected to increase to 7.0 million bags. From 6/3/17 to 7/11/17, September 2017 Coffee C futures have posted a yearly low of 115.50 on 6/22 and subsequent rebound to close at 126.90 on 7/11. As of now, September Coffee C futures remain weak, with price lagging beneath the 38% retracement of this year’s range, 133.93. 7/11/17 spot prices for Colombian, New York coffee, came in at $1.4856 per pound. This is down considerably from $1.6794 per pound on the same date, year over year. Technicals: Weekly chart for Coffee C futures, 7/11/17
Description: Sugar No. 11 Futures
Front Month Contract: October, 2017 (SBV7)
The global trade of raw sugar centers around the Sugar No. 11 futures contract for trade on the Intercontinental Exchange (ICE). For the period 6/3/17 to 7/11/17, Sugar No. 11 futures fully rolled from the July to October 2017 contract. Currently, the Sugar No. 11 October 2017 contract is trading 80% of volume, with the March 2018 contract a distant second. 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:
Historically, June Sugar pricing gravitates to midpoint of yearly valuations in both the spot and futures markets. June of 2017 breaks those general tendencies, as the sugar market remains depressed, trading in the neighborhood of yearly lows. Global production for 2016/17 is 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 the 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. deliveries for human consumption 2016/17 have been increased by 100,000 short tons, raw value (STRV) to 12.3 million based upon the monthly pace calculation for May 2017. U.S. sugar imports for 2017/18 are projected to rise considerably by 662,000 tons to a record 3.5 million. U.S. ending stocks for 2016/17 are estimated down 1.440 STRV, derived from an estimated stocks-to-use ratio of 11.4%. June marked continued weakness for No. 11 Sugar futures, with the October contract extending yearly losses, posting a yearly low of 12.74 on 6/28. A moderate rebound produced a close of 13.27 for 7/11. No. 11 Sugar futures remain in steep monthly downtrend, trading beneath 2016’s low, and challenging the low of 2015. Technicals: Weekly Chart for Sugar No. 11 Futures, dated 7/11/17
Product: Live Cattle
Market: CME Globex
Description: Live cattle futures
Front Month Contract: August, 2017 (LEQ7)
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 6/3/17 to 7/11/17, the Live Cattle futures trade centered around the August 2017 contract, with interest shifting to the October 2017 contract. Currently, Live Cattle is trading the August 2017 contract at a 4/3 ratio over October with rollover pending in the coming days. 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 summer season produces divergence in the futures and spot markets for Live Cattle. Futures typically see pricing increase, while the spot markets see depreciating value. 2017 is a bit of an outlier, in that political and macroeconomic issues have greatly impacted the Live Cattle market, producing strength in May and relative weakness in June. 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 6/29/17 measured 14,900 MT, were unchanged from the previous week, but up 7% from the prior 4 week average. Leading destinations were Japan, South Korea, Hong Kong, Mexico and Canada. Global net sales of 17,000 MT for 2017 reported 6/29/17 were up 52% from the previous week and 36% from the prior 4 week average. Increases for Japan, Hong Kong, South Korea and Mexico led the way, with Egypt being the top decliner. US production for 2016/17 is forecast to be up over 5% to 12 million tons, a 9 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. August 2017 Live Cattle futures currently remain the front month contract. For the period of 6/3/17 to 7/11/17 Live Cattle futures have undergone correction in the wake of the US/China trade deal. After posting a yearly high of 127.650 on 6/6, August Live Cattle futures underwent heavy correction to a monthly low of 112.425 on 7/6. Moderate rebound has seen August Live Cattle close at 114.875 on 7/11. The 7/11/2017 spot prices of Choice and Select beef (600-900 pounds) came in at 190.06 and 174.69. Choice beef is up from 187.08 last year at this time, while Select is off from 175.08 year over year. Technicals: Weekly Chart of Live Cattle, 7/11/17
Product: Lean Hogs
Market: CME Globex
Description: Lean Hog futures
Front Month Contract: August, 2017 (HEQ7)
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 6/3/17 to 7/11/17, volume among Lean Hogs has been fractionally diluted, with July 2017 Lean Hogs rolling to the August and October 2017 contracts. Currently, Lean Hog Futures are experiencing a near 1:1 volume split between the August and October contracts, with rollover pending. 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:
Historically, the pricing of Lean Hogs during June for the futures and spot markets show a divergence. Typically, Lean Hogs trade near the top of the yearly range in the spot market, while futures pricing remains relatively depressed. For the period of 6/3 to 7/11, Lean Hog futures have shown a bit of everything, from a compressional phase early on in June, to a bullish rally posting yearly highs and subsequent pricing retracement. 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 6/29/17 came in at 13,200 MT, down 50% from the previous week, and 39% from the previous 4 week average. Gains in sales were reported for Mexico, Hong Kong, Japan, Canada and Columbia, with Costa Rica reporting a reduction. Global exports reported on 6/29/17 were 17,400 MT, down 12% from the previous week, and 14% from the prior 4 week average. Primary export destinations were Mexico, Japan, Canada, Hong Kong and South Korea. U.S. inventory of all hogs and pigs reported in June 2017 was 71.7 million, up 3% year over year, and up 1% from March 2017. Highest June inventory since 1964. U.S. breeding inventory up 2% year over year, coming in at 6.07 million. US hog producers anticipate 3.06 million sows farrow for June-August 2017, up fractionally year over year, and 2% over 2015. For the period 6/3/17 to 7/11/17, August 2017 Lean Hog futures have exhibited substantial volatility, prompting a bullish rally and subsequent retracement. From a low of 77.600 made on 6/15, Lean Hog pricing showed strength posting a yearly high of 85.375 on 7/5. The subsequent retracement established a swing low of 81.850 on 7/10, which remains in bullish territory well above the 38% level of this year’s range. 7/11/17 spot prices for Iowa-South Minnesota hogs settled at $87.84 cwt, up considerably from last year’s price of $78.17 year over year to the day. Technicals: Weekly Chart for Lean Hogs, 7/11/17
This article contains general information and does not represent trading advice.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SUGAR FUTURES over the next 72 hours.
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.
Additional disclosure: Some model portfolios on www.HedgedEquity.com hold a position in Coffee and Soybeans at the time of this publication. A position in Sugar may be initiated in the next few days. The use of this article is for educational and informational purposes only. NOT investment advice. None of the material presented in this article should be construed as investment advice (neither direct, explicit, or implied). It is strongly suggested and recommend that you do your own due diligence and/or consult a qualified financial advisor for any investment advice based on your situation.