Market Insights Week of Aug 14, 2024

Market Insights Overview: Descartes Labs' advanced geospatial insights uses quantitative models for the most accurate price forecasting, and involves a rigorous process from a broad library of forecasts in agriculture/industrial production, weather and human activity. In this blog, we provide you insights on the current week's market.

*Disclaimer: This blog post and related information is provided by Descartes Labs, Inc. (“Descartes Labs”) and was prepared solely for informational purposes. It is based upon or derived from information generally believed to be reliable, but no representation is made that it is accurate or complete. Descartes Labs accepts no liability with regard to the use of or reliance on it, and it should not be taken as investment, trading, or other advice.

Macro

The last two weeks have been marked by some disappointing economic news that weakened the US stock market and the dollar. On 8/2, the jobs report showed that employers added only 114,000 new jobs last month, far fewer than the 175,000 jobs expected by economists. The unemployment rate climbed to 4.3%, the highest level since October 2021. This sparked a sell-off in stocks and raised the market expectations that the Fed could undertake an emergency action by lowering rates down or planning a larger interest rates cut come September. The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 56% for a -50 bp rate cut at that meeting. 

Grains

August WASDE was released on August 12th. U.S. corn and soybean yields will be the focus in USDA's August crop reports, but don't forget that acreage adjustments are also on the table now. USDA announced this back in October. As can be seen in the commentary for corn and soybeans, the harvested area adjustment had a significant impact on the production estimates this month.

• Corn: Corn prices were again under pressure over the last week in anticipation of the WASDE report. Trade estimates are showing most analysts expecting to see an increase in US average corn yield.
  
  The CFTC Commitment of Traders report this afternoon showed commercial (PMPU) traders had finally returned to a net short position of 38,605 contracts as of August 6. The managed money spec funds trimmed their net short position by 52,551 contracts in the reporting week, leaving them net short 242,545 contracts.
  
  Crop conditions have remained stable with one of the largest recent Good+Excellent share. Crop progress is slightly ahead of schedule.

In the WASDE report, USDA increased their production guidance from 15.1 Bn bu in the July report to 15.15 Bn bu. The increase is the result of offsetting updates: on one hand, the USDA is anticipating a strong yield for corn at 183.1 bu/acre vs 181 in July report and 182 estimated by the market, but on the other hand, the harvested area was reduced from 83.4 millions acres to 82.7, limiting the impact on production to only 0.05 Bn bu. This limited production increase, combined with some slightly larger use, is leading the US ending stocks estimate for 24/25 to actually decline in this August report from 2.1 Bn bu to 2.07 Bn bu. Note that this estimated corn yield of 183.1 bpa would be the largest on record for the US.

Last week Descartes Labs forecast had been very mildly bearish and anticipated a potential rally back above 400 cts/bu for the Sep-24 contract. As the week progressed, this expectation of a rally disappeared and the latest outlook is flat around 380 cts/bu.

• Soybean: Soybean prices were also significantly under pressure over last week, with most of the pressure coming from the soybean-meal part of the complex which really sold-off over all last week. USDA reported a couple different export sale announcements on Friday, with 132,000 MT of new crop sold to China and 212,000 MT of soybeans sold to unknown during the ‘reporting period’ (50,000 MT for old crop and 162,000 MT for new crop). There was also a total of 100,000 MT of bean meal sold to Columbia, with 12,000 MT for 2023/24 and 88,000 MT for 2024/25.

Expectations for the WASDE report are to show a production estimate increase. Those expectations were confirmed in August WASDE report as USDA reported an estimated increase of US ending stocks for the 24/25 crop from 0.465 Bn bu in the July report to 0.56 Bn bu, a 20% increase… This would be the largest US soybean ending stocks print since August 2020. This increase is mostly the result of upward adjustment to soybean production, climbing from 4.435 Bn bu to 4.589 Bn bu. Both components contributed to the increase: USDA is reporting a record yield at 53.2 bu / acre (vs 52 in July and 52.5 estimated by the market) and adjusted the harvested area estimate to 86.271 millions acres from 85.261 in the July report.

This soybean yield at 53.2 is the second highest estimated by USDA (August 2020 report showed 53.3 but ended up at 51 bpa).

• Soybean meal: The run-up in prices in soybean meal prices cooled off significantly last week as the prospect of negotiations in Argentina with the exporters/traders made the end of the strikes possible, which would alleviate the short-term supply concerns that supported the prices and the soybean meal curve structure in the past weeks. 

The Descartes Labs forecast last week anticipated some short-term mild weakness. The 10d model showed some potential for Sep-24 contract to rebound into expiry but that would be temporary.

• Wheat: The wheat contracts were mildly supported last week, with only Chicago wheat able to print a week-on-week price increase, despite the improvement in the Good+Excellent condition share. CFTC data is showing a small decrease in the net short positions of Managed Money.
  
  On the bullish side, France’s Ag Ministry cut the country crop estimate by 3.3 MMT to 26.3 MMT. FranceAgriMer also reported 88% of the country’s harvest now complete. The crop was rated at 48% good/excellent another 2% drop from the week prior.
  
  The WASDE report on Monday reported only minor adjustment to the 24/25 wheat balance. The update was somewhat bullish with US ending stocks reduced from 0.856 Bn bu in the July report to 0.828 Bn bu in this August report. This adjustment was the result of a smaller anticipated crop.

Vegoils

• Soybean-oil: Soybean-oil rebounded from the lows at 40 cts/lb. The rest of the vegetable oil complex was under pressure nevertheless.

Last week's outlook was mildly bullish, anticipating the Oct-24 contract to stay around 41-42 cts/lb range. The most recent outlook is also range-bound, anticipating the contract to stay above 40 cts/lb nevertheless.

• Canola: 

• Palm-oil: Malaysian palm oil futures rose on Friday, buoyed by stronger rival Dalian and Chicago contracts and firmer crude oil prices, but chalked up a third consecutive weekly loss. The contract lost 4.37% on the week after falling 1% over the previous two weeks. It is unclear what was the main driver behind the price correction from last week, except some delayed impact from the weakness in crude prices and market fear.

Malaysian palm oil futures opened higher, lifted by a recovery in the soyoil, rapeseed oil and energy markets overnight, as well as a bullish recovery in Chinese vegetable oil futures in Asian hours. "The steady buying by India has further helped the palm oil cause."

Oil prices were steady on Friday and on course for a weekly gain of more than 3% as U.S. jobs data calmed demand concerns while fears of a widening Middle East conflict persisted. Palm oil inventories in Malaysia are expected to drop in July for the first time after rising for three consecutive months, a Reuters survey showed. Industry regulator the Malaysian Palm Oil Board is scheduled to release its monthly palm oil data on Aug. 12.

The Descartes Labs did not anticipate the price correction of last week and had maintained an outlook around 3900 myr/mt. As a result of last week drop, the outlook is now bullish, expecting prices to rebound back towards 3900 myr/mt.

Softs

• Sugar: Raw sugar . Sugar prices were relatively supported last week, as they initially climbed to 1-week highs on positive carryover from Thursday when India's Food and Commerce Ministry said it would maintain its curbs on sugar exports to ensure adequate domestic supplies and boost India's ethanol output.
  
  The week before Unica reported on July 25 that Brazil's Center-South sugar output in the first half of July fell -9.7% y/y to 2.939 MMT.  However Center-South sugar production in the marketing year through mid-July was still up by +10.4% y/y at 17.140 MMT. 

Descartes Labs forecast last week for raw sugar anticipated some weakness before the rally towards 19 cts/lb. With last week late move, the outlook is now for some minor continuation before a correction towards 18 cts/lb.

White sugar: Sugar prices Friday fell back from 1-week highs and posted moderate losses on optimism that above-average monsoon rains in India will lead to a bumper sugar crop.  NY sugar on Monday fell to a 1-3/4 year nearest-futures low, and London sugar dropped to a 2-1/3 year low after the Indian Meteorological Department reported that India received 512.5 mm of rain during the current monsoon season as of August 4, up +6% from the comparable long-term average of 481.9 mm.  India's monsoon season runs from June through September.

Descartes Labs forecast last week for white sugar anticipated some short-term support, followed by some weakness by August 15th. With the some rally last week, the outlook is now flat to bearish.

• Cocoa: Cocoa prices moved sharply higher this past week, with NY cocoa posting a 7-week high on concern dry weather in West Africa could curb the region's cocoa production.  Forecaster Maxar Technologies said today that top cocoa-producing countries Ivory Coast and Ghana have seen a "significant decrease in shower activity" over the past month, leading to below-normal soil moisture and limited crop growth.  Also, current weather forecasts for West Africa indicate below-normal rain for the next two weeks.
  
  ICE-monitored cocoa inventories held in US ports fell to a 4-1/2 year low Thursday of 2,839,452 bags.

On last Monday, cocoa prices fell to 1-month lows on global cocoa demand concerns after Hershey, the world's fourth-largest chocolate producer, reported a quarterly sales drop and cut its full-year outlook last Thursday due to weakening consumer demand for chocolate. 

Last week Descartes Labs forecast for London cocoa was bullish, anticipating a rally back towards 6,000 gbp/mt for the Dec-24 contract. The market did rally, albeit the move on New York cocoa was much faster, leading to this abnormally large arb.

• Coffee: Arabica. September arabica coffee on Friday closed down -4.59%, and Sep ICE robusta coffee closed down -2.48%. Coffee prices Friday sold off sharply after Brazil's weather forecasts for next week shifted warmer, which reduced the chances of frost damaging coffee trees and sparked long liquidation in coffee futures.  Coffee prices have rallied this week, with arabica posting a 1-month high Thursday and robusta posting a 2-1/2 week high on concern that freezing temperatures in Brazil could damage coffee crops after Rural Clima forecasted that temperatures in Brazil could drop to near freezing next week.

Larger coffee supplies from Brazil are also negative for coffee prices.  The Brazilian Trade Ministry reported Wednesday that Brazil's July coffee exports rose +44% y/y to 202,000 MT.

Last week Descartes Labs Arabica forecast was bullish although it did not anticipate such a fast move up and then down. The outlook is for range bound prices between 230-240 cts/lb, with a small upward bias.

Robusta: A rebound in ICE coffee inventories from historically low levels is negative for prices.  ICE-monitored robusta coffee inventories on July 25 rose to a 1-year high of 6,521 lots, up from the record low of 1,958 lots posted in February 2024. 

Last week Descartes Labs Robusta forecast was also directionally bullish but expected the price move to occur a little bit later. The speed of last week move is making the most recent forecast trajectory more dynamic, with the potential for a continuation of the rally towards 4500 $/mt before tapering off.

Energy

• Crude oil : Strong rebound in crude prices last week, thanks to supportive stats and an increase in geopolitical premium.

• Gasoline: We saw some improvements in gasoline cracks last week on a larger draw than expected.

• Diesel/Gasoil: The diesel market was negatively impacted by the surprise Chinese central’s bank interest rate cut fueling concerns about demand.

• Natural gas: The prompt contract rebounded a little last week as the supply demand is finally getting a bit tighter in the current conditions, helping support the cash price of natural gas..

Receive Market Report Notifications

Sign up below to get alerts directly in your inbox when a new Market Report is released.