USDA’s report on monthly supply and demand report will be released on Thursday, Oct. 11th, 2012. Corn and soybean future prices are likely to remain stable until the report is released.
Commodity futures prices have been low for the past week largely due to the reduced import by China, as the nation was closed for a national holiday. China is likely to increase import next week, which might cause the commodity prices to bounce up.
Wheat
An industry association said that Indonesia, Asia’s top importer of grain, may impose 20% wheat import tariff to protect domestic mill industry. This is going to decrease Indonesia’s demand for wheat. USDA also reported that wheat production in Idaho has also decreased by 15%. Moreover, Pakistan’s government is working on recovering wheat storage charges. Recent estimates by the Australian government shows that wheat production is likely to decline by more than one million tons. A lower Australian wheat crop reduces the world wheat supplies, and increases the price. At the same time, Russia is still looking at export control. Also, as export in Russia and Ukraine decreases, France is possibly going to increase wheat exports.
The gathered information shows indicators of both upward and downward moving of wheat price for the near future. The chart below is wheat’s intraday commodity futures price for the past week. There’s a clear downward trend on Oct. 5th, 2012. It is likely that price is going to rebound at the opening of the market after the weekend.
Corn
As of Oct 5th, 2/3 of the corns are done harvesting. Rain in the Corn Belt over the weekend is likely to slow things down a bit. Corn basis is well above average in most locations, although corn future is still struggling a bit. Furthermore, with pest problems and recent typhoon impact in China, there could be a dramatic yield reduction in corn. China is the world’s second largest corn producer; a reduction in supply could have great effect on the world corn market, and potentially increase the corn future price.
There was a sudden drop in corn price between Oct 4th, and Oct 5th. There could potentially be an expeditious price spike in response to last week’s abrupt price drop after the market opens on Monday.
Soybean
As of Oct 5th, soybean is half way done harvesting, but harvest is going to be slowed for a few days due to the recent showers. In Canada, Manitoba farmers expect a yield of 661,300 tons of soybean this fall, which if well above last years’ annual record. Investment Banking Firm, Goldman Sachs, expects soybean prices to be lower than corn and wheat future prices, due to bigger than expected soybean supplies from the U.S..
Soybean future price spiked earlier last week as a result of a large purchase by China, and remained high since. Judging from the chart below, it is unlikely for soybean price to continue increasing without dropping first. I expect to see some fluctuation in soybean price earlier next week, followed by a decrease in soybean future after the release of the USDA report on Thursday.
In general, I anticipate commodity future prices for wheat, corn and soybean to remain relatively stable, with slight fluctuations for the next few days. There will be a dramatic price spike or price drop in commodity futures as a result of USDA’s report release on Thursday Oct.11th, 2012.
Reference
http://af.reuters.com/article/commoditiesNews/idAFL3E8L53Y120121005
http://www.brecorder.com/agriculture-a-allied/183/1245499/
http://www.brecorder.com/agriculture-a-allied/183/1245497/
http://farmfutures.com/story.aspx/usgc-projects-strong-chinese-corn-crop-17-63880
http://futures.tradingcharts.com/intraday/CZ2?anticache=1349593362)
http://futures.tradingcharts.com/intraday/SB/B2
http://futures.tradingcharts.com/intraday/ZW/C2
2 replies on “WEEK 4 (Part 2): The Road Ahead”
Good analysis Vicky! Even though you traded in wheat, your holistic understanding of other commodity prices is commendable. I guess one has to look at these prices to come to a more logical conclusion. I myself traded in Soybeans and realized a few losses. As for my rationale, I used similar analogy to yours and based my prediction on the depreciating U.S. dollar and its impact on world market. However, the information of higher U.S. soybean supplies is new to me and I wish had stumbled upon this earlier in the week. If I followed correctly, then you are predicting a declining price for soybeans after the USDA report because of the fact that it will outline higher U.S. soybean harvest. Correct?
Also, thank you for informing us all about the upcoming USDA report. It will certainly have an impact on the prices, the way it did two weeks ago. The next week will be very exciting for traders in the soybeans market. The factors such as the influx on 661,300 tons from Manitoba, Canada, that you have mentioned as well as the fluctuating U.S. economy promises an eventful week. I look forward to reading more of your blogs in the future. Nice work!
Thank you for reading my blog, Ahmed!
I think it’s great how you took the U.S. dollar depreciation into consideration. Currency change is one of the factors that I haven’t been using when predicting the market trend, and I should probably look into that in the coming weeks (thank you for reminding me on that :P).
I do think soybean future price is going to drop at some point next week. If the price stays relatively stable before Oct 11th, then the price drop should be significant after the release of the report. However, if soybean price drops before Thursday, then the drop in soybean futures price wouldn’t be as great. Although my prediction could be totally off, as traders’ behaviors could also impact the market, and it’s very hard to predict scalpers’ movements. For example, if all of them think that there’s a downward price trend in soybean, scalpers might take the short position all at the same time, and wait for the soybean price to drop. Once the price is low enough (due to the sudden increase in supply from selling), all the traders would then offset by taking the LONG position and take advantage of the price difference. This could result in a sudden increase in soybean price, although the odds of this happening are slim to none.