WEEK 3 (Part 2): The Road Ahead

Wheat, soybean and corn prices were pressured last week as a result of harvesting. The release of the USDA report on Friday, September 28^th, 2012 caused prices to spike on the market, and crop prices to rebound.

Wheat

According to the latest USDA report released on Friday, September 28^th, 2012, wheat stocks went down by 2% from September 2011. The decline was not as drastic as many experts may have expected. Nevertheless, many countries are still running short in wheat supplies. Australia wheat production has estimated to be decreasing weekly. The US corn market has also been devastated by the drought, and the U.S. wheat market plays a key role in determining the world price for wheat. The U.S. government reported on Friday that wheat stockpile shrank more than expected this summer. On the other hand, Russia, one of the major wheat exporters, has raised the price of wheat instead of controlling their export. Officials still believe that Russia will restrict its wheat export, and reduce their export capacity by 5-8 million tons. This could lead to an increase in wheat sales in Europe, who also appears to have a tight wheat stock. Traders reported on Thursday that Europe has been exporting to Iran, Morocco, Algeria, and Egypt, etc. If Europe’s stock runs short, importing countries would have no choice but to purchase from the U.S., whose wheat price is relatively expensive. In addition, even though wheat stock only declined by 2%, corn stocks went down by 12%. Many consumers have been using wheat as substitutes for corn, which has led wheat consumption to increase by 27% for June – August compared to one year ago.

With the information listed above, I foresee an increase in wheat futures. However, since wheat futures skyrocketed and possibly reached its limit up on Friday, it can be expected that wheat price is going to decrease somewhat before it increases again.

Corn

According to the latest USDA report released on Friday, September 28^th, 2012, corn stocks went down by 12% from September 2011. The release of the report rose corn future by 40 cents.

The U.S. Department of Agriculture reported corn stocks were below 1billion bushels for the first time in 8 years. Depressed global corn supplies are caused by the U.S. drought and poor harvest earlier this year in South America. About ½ of this year’s crop is in poor to very poor conditions. In addition, part of the corn supplies has been in storage before September due to early harvesting. Consumers are turning to wheat for substitute.

Crops prices fluctuate in cycles. While 40 cents jump in corn future from Friday looked like limit up was reached, corn price is not nearly as high compared to the end of August. Therefore, it can be anticipated that corn price is going to increase tremendously in the next few weeks.

Soybean

USDA reported soybean stocks went down by 21% from September 2011 on Friday, September 28, 2012. Given the report from USDA, and compared to the soybean price from last month, I anticipate the soybean price to bounce up further.

In the meanwhile, the Indonesian government is setting a base buying price (HPP) for soybeans to protect the farmers and producers, and to stabilize the price. The U.S. is Indonesia’s biggest importing channel for soybean. However, the drought in theUShas increased imported soybean price on the local market by 60%. The government is currently trying to increase domestic production to break their independence from theU.S.for soybean. This is possibly going to affect soybean future in the world market.

 

Reference

http://www.bloomberg.com/news/2012-09-28/u-s-corn-stockpile-unexpectedly-drops-sparks-price-rebound-1-.html

http://www.brecorder.com/markets/commodities/europe/82472.html

http://commodities.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=commodities&cdn=money&tm=20&gps=187_43_1366_673&f=00&tt=2&bt=1&bts=1&zu=http%3A//usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do%3FdocumentID%3D1079

http://www.forexpros.com/commodities/us-corn

http://www.forexpros.com/commodities/us-corn-streaming-chart

http://www.forexpros.com/commodities/us-soybeans

http://fw.farmonline.com.au/news/nationalrural/grains-and-cropping/wheat/wheat-running-its-own-race/2625908.aspx

http://fw.farmonline.com.au/news/state/grains-and-cropping/wheat/wheat-price-upside-still-in-play/2625867.aspx

http://www.reuters.com/article/2012/09/28/usa-crops-idUSL1E8KSBZ820120928

http://seattletimes.com/html/businesstechnology/2019291145_apuscommoditiesreview.html

http://www.thejakartapost.com/news/2012/09/29/government-set-base-prices-soybeans.html