Market Insights Week of Sept 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

Our latest commentary was issued more than one month ago. The job creation and unemployment numbers have been disappointing over August and early September, pointing to a slow down in the US economy growth. At the same time, the August inflation number came up at 2.5% (including food and energy) (+3.2% without) opening the door for the FED to lower rates.
Indeed, it is the expectations of a 0.5% rate cut in this week September FED meeting that weighed on the dollar last week. Dovish comments today from former New York Fed President Dudley knocked bond yields lower and weighed on the dollar when he said he sees “a strong case for a 50 bp cut” in interest rates at next week’s FOMC meeting.  Strength in the yen also undercuts the dollar as the yen jumped to an 8-1/2 month high against the dollar today. The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 48% for a -50 bp rate cut at that meeting.

Outside the US, ECB President Lagarde said she is open to considering an interest rate cut in October if the Eurozone economy suffers a major setback, but a cut at the December ECB meeting is more likely as we will have more comprehensive information available on the economy by then. 

Grains

September WASDE was released on September 12th and was relatively uneventful from a price move perspective.

• Corn: USDA updated their yield expectations for corn to 183.6 bu/acre (+0.5) vs August estimates, a larger increase than expected by the market. The associated higher production at 15.186 Bn bu boosted the US ending stocks expectations for the 24/25 crop to 2.057 Bn bu, lower than the August estimate, mostly thanks to a downward adjustment in the 23/24 carryover because of higher exports for the 23/24 crop.
  
  All in all, it was a relatively bearish publication for US corn while the World ending stocks estimates were a little bit more supportive, with 308.25 MMT vs the 309.39 MMT expected and last month USDA estimate of 310.17.
  
  USDA did not adjusted any numbers for South American crop production.
  
  Weather is back in focus for corn and soybean though, with a rainfall deficit widening over the last 4 weeks in Mato Grosso and Southern Brazil, while drought conditions in central US have been worsening over the last 8 weeks. Crop condition remain good nevertheless for corn, with the highest level of Good+Excellent in recent years for this time of year with almost 65%.
  
  Those good news on supply only exerted pressure on prices temporarily on report date, as corn closed in the green on that date and continued slowly its rebound from the lows at the end of August.
  

Last week Descartes Labs forecast had been mildly bullish and was inline with the price move we observed last week. The outlook is for further moderate support for corn prices in the coming weeks.

• Soybean: After rallying over the last week of August, soybean prices were under pressure anew last week.
  
  The WASDE publication was mostly neutral with unchanged production expectation on same yield and acreage from August. The US ending stocks estimated were adjusted down a little bit to 0.55 Bn bu on higher crush. While minimal, it is worth mentioning that USDA adjusted down their 23/24 soybean Argentina production number to 48.1 MMT (from 49), keeping the rest of South American constant month-on-month.
  
  The month-on-month similar yield number does hide some movements in state’s yield. Notable cut for Ohio, though Iowa is now seen matching its 2021 record. The Argentine soybean crop is pegged at 52 to 53 MMT according to the Rosario Grain Exchange, with acreage up 7.5% to 43.73 million acres. CONAB left their Brazilian soybean crop estimate for 2023/24 at 147.38 MMT in this morning’s update.
  
  On the supportive side, export sales data showed new crop soybean sales of 1.474 MMT, on the high side of the expected 900,000 MT to 1.6 MMT for the week that ended on September 5.
  
  

• Soybean meal: Soybean meal sales totaled net reductions of 2,969 MT for 2023/24 shipment, with 276,031 MT sold for 2024/25, on the lower side of the 200,000 to 650,000 MT estimates.

The Descartes Labs forecast last week anticipated a fairly stable market but anticipates that the lows are in for soybean-meal with mostly upward support from here.

• Wheat: Wheat prices were supported last week, despite a WASDE publication more on the bearish side. USDA kept their US ending stocks estimate constant month-on-month at 0.828 Bn bu, while increased their World ending stocks expectations from 256.62 MMT to 257.22 on bigger supplies from Canada. It is interesting to note that EU's 24/25 wheat crop was cut by 4 mmt to 124 mmt, though that was partly balanced by a 2.5 mmt reduction in exports. Ukraine's 24/25 wheat exports were increased 1 mmt to 15 mmt (below last year's 18.6 mmt).
  Export Sales data showed 474,875 MT in all wheat sales for the week that ended on 9/5, which was up 39.7% from last year and in the middle of the estimates of 300,000 to 550,000 MT. Taiwan was the largest buyer of 105,400 MT, with the Philippines buying 98,900 MT and South Korea purchasing 91,200 MT.
  
  

Vegoils

• Soybean-oil: The whole vegetable oils complex was under pressure last week, on the back of weaker energy prices and a weaker soybean complex. Bean oil bookings totaled net reductions of 523 MT for 2023/24, with just 1,730 MT in sales for 2024/25.

Last week's outlook was for a stable market but has recently turned bearish. The Descartes Labs anticipates further weakness. The forecast trajectory indicates a minimum above 35 cts/lb before the potential for a rebound.

• Canola: 

• Palm-oil: Malaysian palm oil futures fell on Thursday to their lowest level in three weeks, on expectations of an import duty hike by top buyer India and in response to weakness in soyoil and palm oil contracts in the Dalian market.

The benchmark palm oil contract for November delivery on the Bursa Malaysia Derivatives Exchange closed down 53 ringgit, or 1.36%, at 3,848 ringgit ($888.07) a metric ton. India is considering increasing import taxes on vegetable oils to help protect farmers reeling from lower oilseed prices, two government sources told Reuters last month.

India’s palm oil imports in August fell more than a quarter from a month ago, primarily driven by sufficient domestic stocks and negative margins that discouraged refiners from purchasing more of the tropical oil, a leading trade body said on Thursday. Palm oil has been losing competitiveness because of falling soyoil prices, said Anilkumar Bagani, the research head of Mumbai-based Sunvin Group. As can be seen on the differential chart below, the soybean oil premium has kept going on, pressuring palm oil even further. A cargo surveyor said on Tuesday exports of Malaysian palm oil products for Sept. 1-10 fell 4.6% to 448,985 metric tons from a month ago.

The Descartes Labs model anticipated some minor price correction last week. However, from the current lows, the most recent outlook is more supportive and the model sees a potential rally back towards 3900 myr/mt for the Nov-24 contract.

Softs

• Sugar: Raw sugar . Raw sugar fell back from its best levels Friday, with NY sugar retreating from a 1-week high and turning lower after crude oil prices gave up an early advance and moved lower.  On Tuesday, sugar prices fell to a 2-week low after crude oil plunged to a 16-month low. Sugar has carryover support from Thursday when Unica reported that Center-South sugar production in the second half of August fell -6.0% y/y to 3.258 MMT.  Although, for the 2024/25 season through August, sugar production is up +3.9% y/y to 27.169 MMT. Late last month, sugar prices rallied to 2-month highs as drought and excessive heat caused massive fires in Brazil that have damaged sugar crops in Brazil's top sugar-producing state of Sao Paulo.  Sugar cane industry group Orplana said that as many as 2,000 fire outbreaks affected up to 80,000 hectares of planted sugarcane in Sao Paulo.
  
  In a supportive factor for sugar prices, the International Sugar Organization (ISO) on August 30 forecasted a 2024/25 global sugar deficit of -3.58 MMT, much larger than the estimated -200,000 MT deficit for 2023/24.  ISO forecasted 2024/25 global sugar production of 179.3 MMT, down -1.1% y/y from 181.3 MMT in 2023/24. 

The Descartes Labs forecast had anticipated some of the early weakness from last week but not the rebound we observed on Thursday/Friday. From here, the outlook is for a stable market for the next couple of weeks.

White sugar: London sugar posting a 1-week high on Friday. Sugar prices have been under recent pressure on optimism that above-average monsoon rains in India will lead to a bumper sugar crop.  The Indian Meteorological Department reported today that India received 849.3 mm of rain during the current monsoon season as of September 13, or 8% more than the comparable long-term average of 784.3 mm.  India's monsoon season runs from June through September. 

Descartes Labs forecast last week for white sugar anticipated some short-term support and did not anticipate the drop we saw mid last week. The outlook is for moderate support in the short-term. The model sees some potential for further gain heading into October.

• Cocoa: Cocoa prices recovered from early losses on Friday and settled moderately higher.  Lower cocoa production in the Ivory Coast, the world's largest producer, is bullish for cocoa prices.  Government data on Monday showed that Ivory Coast farmers shipped 1.71 MMT of cocoa to ports from October 1 to September 8, down by -28% from the same time last year.
  ICE-monitored cocoa inventories held in US ports have kept trending lower for the past 15 months and fell to a 15-year low Friday of 2,310,688 bags.
  
  Cocoa also has carryover support from Wednesday when the Ghana government raised the price that its cocoa regulator pays farmers for cocoa by 45% to $3,063 per ton for the 2024/25 season that began this month.  The price increase was below expectations of 65%, which may prompt Ghana's cocoa farmers to hoard beans in the hopes of even higher prices.

Late last month, NY cocoa rallied to a 2-1/2 month high due to concern that excessively dry conditions in West Africa could curb the region's cocoa production.  Forecaster Maxar Technologies recently said that top cocoa-producing countries Ivory Coast and Ghana had seen a "significant decrease in shower activity" over the past month, leading to below-normal soil moisture and limited crop growth.

Last week Descartes Labs forecast for London cocoa was bullish, anticipating a rally back towards 6,000 gbp/mt for the Dec-24 contract on the back of strength for the New York cocoa market. As London cocoa failed to rally as expected, the outlook cooled down on the short-term and the outlook is for a stable market into the end of the month, before the potential for a rally in early October.

• Coffee: Arabica. Coffee prices Friday rallied sharply, with Dec arabica and Nov robusta posting contract highs. Coffee prices rallied on adverse global weather events that could curb coffee production.  Meteorologist Climatempo said Friday that temperatures will be well above normal in Brazil's coffee-producing areas this weekend, which could damage coffee trees in their critical flowering period and reduce coffee yields. Brazil has been facing the driest weather since 1981, according to the natural disaster monitoring center Cemaden.  Somar Meteorologia reported Monday that Brazil's Minas Gerais region received no rain over the past week.  Minas Gerais accounts for about 30% of Brazil's arabica crop.
  
  On Thursday, ICE-monitored arabica coffee inventories rose to a 1-1/2 year high of 858,474 bags, up from the 24-year low of 224,066 bags posted in November 2023.
  
  

Last week Descartes Labs Arabica forecast was bullish although it did not anticipate such a strong move up. As a result, the outlook is now more moderate over the short-term, but still remains mildly supportive.

Robusta: Nearest-futures (U24) robusta soared to a record high. Robusta coffee has support after typhoon Yagi struck Vietnam on Monday, which may have damaged the country's robusta coffee fields. Also, 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 towards 5300-5400 $/mt for the Nov-24 contract. From those elevated levels, the outlook is now range-bound around this 5300 $/mt level.

Energy

• Crude oil : While having rebound at the end of the week, crude oil touched its lowest level in almost a year, as fear of economic slowdown and prospect of a crude oil surplus in 2025 have weighted on crude oil prices, despite OPEC+ having decided to postpone their decision to release more volumes on the market.

• Gasoline: Clean products continued to be under pressure, with gasoline cracks hitting recent lows. Demand again disappointed last week with the EIA posting gasoline inventories builds which are not seasonal at the very end of the driving season and into Labor Day.

• Diesel/Gasoil: While having resisted better than gasoline lately, diesel and gasoil prices and cracks reached recent lows last week. EIA reported a build for diesel last week, after a couple of weeks of unseasonal draws. Exports were negatively impacted as the hurricane Francine closed the Houston Ship channel and disrupted exports.

• Natural gas: While the back-end of the natural gas curve continued to be under pressure, the prompt contract rallied on short-term supportive conditions and lower injections than normal, pointing to tighter conditions than seasonal and alleviating the risks of maxing out underground storage at the end of the injection season.

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