Market Insights Week of June 17, 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

There were a series of economic statistics releases over last week, which in aggregate led to support to the dollar against a basket of currencies. On Wednesday, the FOMC kept rates unchanged and reduced its projection to only one 25bp rate cuts for 2024, compared to 75bp expected back in March.

The CPI inflation number published on Jun 12th, which came out unchanged month on month at 3.3%, justified the lack of action. Nevertheless, those data points were offset by a unemployment claims number rising to 242k, while 225k was expected and a US May PPI demand index easing to +2.2% y/y vs expectations of +2.3%.

In addition to this supportive points for the dollar, the dollar index was also supported by weaker foreign currencies, especially the Euro, where the economic news were less supportive and the political uncertainty in France following the call for early parliamentary elections by French President Macron weighed on the stock market and bonds in the Eurozone.

Grains

The USDA WASDE June report was published on June 12th and Brazilian CONAB June report on June 13th, providing a set of fresh numbers to the grains community.

• Corn: Arguably, the June WASDE report had little in terms of update for US supply and demand balance, as the USDA left all components unchanged from the May report, keeping the ending stocks number unchanged at 2.1 billions bu for the 2024/25 crop. USDA still sees the corn production for 24/25 at 14.86 Bn bu, with a yield of 181, almost up +4 bu/acre from 23/24 crop. USDA kept also unchanged the production numbers for corn for Argentina and Brazil. Regarding Argentina, it seems that the story developing around the bug infestation in Argentina corn was too fresh to be taken into account by USDA, but it did support the market over the last couple of weeks as shown by the upward price move and the tightening of the prompt July-Oct calendar spread.
  
  The large discrepancy between Brazil corn production estimates from USDA and CONAB continues albeit CONAB adjusted up their number of a bigger second crop. While USDA kept their estimate at 122 MMT for the 23/24 crop, CONAB increased their number by 2.5 MMT to 114. The gap remains substantial.

In light of those updates, it is also worth mentioning the upcoming heat wave that will blanked the US over the coming week and could have negative impact if not accompanied by rain.

Last week Descartes Labs forecast had been mildly bullish for corn, was bearish anticipating a small rally to 452 cts/bu which did occur by Thursday. However, the outlook from is for a sell-off in corn, especially in July with Sep-24 anticipated to move below 450 cts/bu.

• Soybean: In a similar vein, the updates regarding the soybeans supply and demand balance were relatively limited in this last WASDE report. While USDA kept production estimates unchanged for the 24/25 crop at 4.45 Bn bushels with a yield of 52 bu / acre, the only driver of the change in the US Ending stocks estimate from 0.34 Bn bu to 0.35 was because of a change in the old-crop crush and thus the beginning stocks carryover term.

On the topic of Latam production, USDA adjusted down their Brazil estimate from 154 to 153 MMT for the 23/24 crop, while CONAB also adjusted down their number from 147.7 to 147.35 MMT.

In addition to those updates on fundamental data, it is worth mentioning that the Money Managers combined net positions in US grain and oilseeds continued to be shorter, hinting at an increasing bearish stance.

• Soybean meal: The most notable update on soybean–meal is the strong rally in the July-Oct calendar spread. The overall market remained supported by the soybean complex and strength in the livestock market, especially on the cattle side.

The Descartes Labs forecast anticipated last week soybean-meal prices to stay supported and rally above 360 $/ST for the Aug-24 contract which almost happened but not quite. The outlook for Aug-24 is for some continuous price support into the coming week.

• Wheat: The weakness in wheat we discussed in our last issue was sustained into the last two weeks. The US wheat production comes in very close to expectations, both overall and by class, with an overall All Wheat production at 1.875 Bn bu for the 24/25 crop, a little bit above the 1.858 estimated in May. Spring wheat estimates will come next month.
  
  On a global perspective, the world ending stocks inflated to 259.6 MMT, quite above the 257.8 from last month estimate and an increase compared to the decrease anticipated by the market at 257.3 following the emergency status on Russian wheat. Russia’s total wheat production estimates were adjusted to 78-80 mmt from a previous estimate of 89.9m following late frosts and droughts which impacted key growing regions there.
  
  

Vegoils

• Soybean-oil: Price action was fairly muted on soybean-oil while the overall oilseeds and vegetable oils sector was under pressure, despite a supported energy market. The market is expecting the NOPA (National Oilseed Processors Association) on Monday June 17th.
  Recent numbers from the USDA on the imports of tallow from Brazil showed a drastic increase year on year from 23K to 110K tons for the January to April 2024 period. Tallow can be used as a feedstock for biofuels displacing soybean-oil as a result.

Last week's forecast was anticipating some weakness in soybean-oil prices which finally ended up staying flat for the week. The outlook is flat and range bound for the coming week or so, before improving into July.

• Canola:
  
  
  
• Palm-oil: Palm oil was under pressure over the first half of June with the disappointment from Malaysia’s exports which fell down more than 20% month on month as shipments to China, the EU and Africa declined. This development is coupled with seasonal rise in production, weighing on palm oil futures. Still, the tropical oil has been getting support from rising crude oil and sunflower oil prices.

Last week's forecast for CPO did anticipate some weakness. From this lower point at 3946 myr/mt for Aug-24, the model expect some support in prices that lead the market back towards 4000 myr/mt.

Softs

• Sugar: Raw sugar . In a supportive update for sugar, the International Sugar Organization (ISO) raised its global 2023/24 sugar deficit estimate to -2.95 MMT from a February estimate of -689,000 MT last Monday.  The ISO also raised its global 2023/24 sugar demand estimate to 182.2 MMT from 180.4 MMT, citing upward revisions to India's consumption figures. This was somewhat offset by the first update on the 24/25 crop by Unica showing a 11.8% y/y increase through May at 7.837 MMT. 

Descartes Labs forecast last week for sugar was bullish, anticipating correctly a move towards 20 cts/lb. After this expected ramp-up, the forecast is now looking at some stabilization before resuming a rally in early July.

White sugar: White sugar prices climbed to 1-month highs on Thursday due to concerns about fewer sugar exports from India.  The Indian government said Thursday that it remains committed to increasing ethanol blending with gasoline.  An increase in India's ethanol output could reduce the country’s sugar production and leave less sugar available to export, thus reducing global supplies.  

• Cocoa: Cocoa prices have remained very volatile and have continued to stage a rebound since the trough in the middle of May.
  
  On Thursday, cocoa prices rallied to 1-1/2 month highs on concerns that the global cocoa shortage will persist.  Reuters reported Wednesday that Ghana is considering delaying the delivery of up to 350,000 MT of cocoa beans to next season due to the country's poor crops.  Ghana is the world's second-largest cocoa producer.

Cocoa also has support from concern that Ivory Coast mid-crop cocoa sales restrictions will further tighten global supplies. On Friday June 7th, the Ivory Coast cocoa regulator, Le Conseil du Cafe-Cacao, told companies and exporters that don't have processing plants in the Ivory Coast that they can't buy cocoa beans from the Ivory Coast mid-crop until at least the end of this month.

On a less bullish note, it is worth noting that Ghana started to issue reassurances about recovering crops for next season.

Last week Descartes Labs forecast for cocoa was for consolidation followed by a rally. Instead the rally continued right away. This is leading the model to a forecast trajectory with some initial price support up to +9100 GBP/MT before some consolidation back 8000 followed by further gains to 10,000.

• Coffee: Arabica. Signs of larger coffee exports from Brazil were bearish for prices after Cecafe reported late Tuesday that Brazil's May green coffee exports surged 90% y/y to 4 million bags. Also, as discussed in our previous piece, coffee prices were pressured by Brazil's faster coffee harvest, which has boosted coffee supplies.  Consulting firm Safras & Mercado reported on Friday June 7th that Brazil's 2024/25 coffee harvest was 29% completed as of June 4, faster than 26% last year at the same time and faster than the 5-year average of 27%. Prices showed some support at the end of last week after updated weather forecasts called for limited chances of rain in Brazil's coffee-growing regions like Minas Gerais over the next week.
  Weakness in the Brazilian real is another negative for coffee prices as the real tumbled to a 17-month low against the dollar on Wednesday June 12th.  The weaker real encourages export selling from Brazil's coffee producers.  

The Descartes Labs forecast had anticipated a fairly range bound market for coffee as last week data. It expects further weakness into the coming weeks, at least for Arabica.

Robusta. While robusta recorded a net loss for the week in outright prices, the strength in the July-Sept calendar spread continues to be an evidence of the tightness in the physical market on the very poor Vietnam crop.

Energy

• Crude oil: Crude rebounded from the lows of the week before as it entered the 70-75 $/bbl for WTI. It is the level at which the US government has messaged it would consider refilling the SPR (Strategic Petroleum Reserve) which may have supported prices. The statistics published by the EIA on Wednesday keeps showing a situation a bit looser than initially anticipated heading into the summer but refineries runs did reach the 17 Mb/d level.

• Gasoline: The gasoline crack kept weakening last week, to reach below 22 $/bbl as EIA failed to report a significant draw despite the expected impact of the Memorial Day weekend on demand.

• Diesel/Gasoil: Gasoil was supported all week but the announcement by BP to bring forward the maintenance at the Whiting refinery from September to July did give a boost to the distillates crack at the end of last week. Whiting, with its coker, is equipped to handle heavier crudes, which tends to yield more diesel.

• Natural gas: After a rebound into late May / early June, US natural gas were again under pressure. Production has been fairly volatile recently and has recently inched up. The prospect of more supply, coupled with disappointing cash prices in the prompt physical markets despite the expectations of extended heat across the US next week, weighed on prices.

Receive Market Report Notifications

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