Black Thursday in Chicago: soy loses USD 45/t in one day
Changes in U.S. monetary policy drove large investment funds out of commodity markets, and prices in Chicago lost all of their 2021 gains in a single month.
This week, the United States Federal Reserve (Fed) ended its monthly meeting where it defines, among other variables, reference interest rates. Highlighting the good pace of US economic recovery and recognizing the rebound in US inflation, which in May reached a 5% year-on-year increase at the wholesale level, the highest monetary authority expressed in its statement that it expects to maintain a low level of interest rates until 2023.
However, the rate increase was expected later on. The news of a contraction in monetary policy earlier than expected immediately led to a revaluation of the US dollar worldwide, and the large investment funds reacted by undoing their positions in commodities in search of higher financial returns and protection against inflation. Thus, yesterday significant losses were observed for all agricultural commodities in world reference markets, but also in metals. Oil, while declining, was much more moderate.
SB in particular lost 19% of its value from the relative maximum of USD 603/MT reached on May 12, but just the fall on Thursday, June 17 was 9%, to close at USD 488.6/MT. With these movements, both the price of SB and its by-products, as well as maize, returned to the values they registered at the end of 2020, losing all the gains of 2021 in just one month. In the case of corn, the loss amounts to 4% in a week, but increases to 13% if we compare current prices with the highs of almost USD 290/MT in May this year.
This way, the position of funds has been crucial in deepening the downward spiral that maize and SB are experiencing. Of the last 10 weeks, 8 have been bearish for maize, whose net position of purchased contracts fell more than 30%. In the same period, the net position of investment funds in soy fell more than 8%.
In the local market, following the reference values of the Rosario City Chamber of Arbitration, after reaching USD 350/MT at the end of May, in less than a month SB is around USD 300/MT, losing more than USD 15 in a week. Maize was already close to bottoming-out of USD 200 benchmark at the end of last week, a fact that finally came to be this week, trading around USD 190/MT, and consolidating its bearish path in the last weeks after trading about USD 240/MT in mid-May.
Meanwhile, export prices for the Argentine SB and maize complex have also shown significant contractions so far in June, led by SB oil, which lost 21% of its official FOB value, reaching USD 1,060/MT on Thursday. Meal, meanwhile, fell 6% in the same period to USD 395/MT, while beans fell 12% to USD 485/MT, dropping only USD 36 per ton on Thursday. Given that the soy complex represents almost 30% of all exports of goods and services that Argentina carries out annually, the precipitous drop in international prices is undermining the external result. The official FOB value of maize, which led the second-largest export complex in 2020, fell 10% so far in June to USD 231/MT, thereby giving up all the ground gained in 2021.
Faced with these movements, although foreign sales were registered with SB in the first days of the week, external business with maize was virtually paralyzed. Despite this, if the export sworn statements (DJVE) accumulated so far in the 2020/21 commercial season are taken, maize still consolidates a notable growth with operations already agreed for more than 29 Mil MT, 15% per above what was recorded at the same level of the previous year. For its part, the accumulated SB complex (beans plus meal and oil) shows a drop of 14% in its exported quantities, adding a total of 17 Mil MT. However, within the complex SB meal and pellets show a rise of 7%, offset by drops in beans and SB oil of 54% and 15% year-on-year, respectively.
The blow to the international value of SB oil and maize, specifically, is related to the uncertainty that reigns around the Biden Administration’s policy regarding biofuels, these products being critical inputs for the production of biodiesel and bioethanol, respectively. In this sense, it is speculated that the US Environmental Protection Agency (EPA) could limit the mandatory cut with biofuel to which oil companies are obliged after the environmental and biofuel promotion objectives of the new government met with strong resistance on the part of the oil sectors, generating doubts regarding the real possibilities of advancing more quickly in this regard. Although there are still no official documents to this effect, there are already statements from both production chambers and public officials generating a whole range of rumors that enhance volatility in the market.
Finally, a supply factor crept into the price movements in Chicago for the week and that has to do with the weather forecasts in light that SB and maize begin to grow in the fields of the United States with some moisture deficit in key areas. The Midwest of the United States, which concentrates some of the states with the greatest weight in the production of maize and SB such as Iowa, Illinois, Minnesota, Indiana, and Missouri, among others, has been in the news for registering the worst reserve of soil moisture of the last 5 years.
However, throughout this week rains were observed and it is expected that they will continue in the coming days, which strengthened the rampage of prices. However, the situation is far from normalizing, and due to the importance of this area in the world supply of SB for the season that is coming in the next weeks, we will be able to see losses being limited or not depending on what happens with the contribution of moisture from the rains.
In the production areas of the American Plains, precipitation and improvements in soil moisture are also expected. However, in the region made up of Nebraska, Kansas, the two Dakotas, among other states, the productive dynamics are also far from the levels of last year and the historical averages.
Amid these climatic prospects, the USDA Crop Progress Report showed a deterioration of the Good + Excellent condition of 5 points for SB and 4 points for maize, which ended with that condition for 68% and 62% of their lots respectively. In both cases, the deterioration for last week was greater than expected by analysts. It remains to wait for the impact of the rains in the next Crop Progress report, to be published next Monday.
Source: https://bcr.com.ar/
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