Prices for cereals in world markets continued to fall, continuing to win back USDA forecasts for a growing crop. The weakening of the dollar, new auctions for the purchase of grain and the restoration of oil allowed restraining the decline. At the Chicago Commodity Exchange, May wheat contracts fell by 1% from 440.5 to 436.25 USD/100 bush, for corn rose 0.8% from 364.25 to 367.25 USD/100 bush, on soybean declined - On 0,6% from 1006,5 to 1000 USD/100 dollars.
The grain market remained under pressure from forecasts from the USDA (US Department of Agriculture), published on March 9. Hedge funds actively closed long positions. USDA raised the forecast for wheat production by 2.8 million tons due to an increase in the forecast of grain yield in Argentina by 1 million tons and Australia by 2.0 million tons. The forecast for the world corn crop was increased by 9 million tons, due to the increase in the forecast for the harvest in Brazil by 5 million tons, South Africa by 1.6 million tons, India by 1.5 million tons and Argentina by 1 million tons. The forecast of world soybean production is increased by 4 million tons from 104 to 108 million tons, due to the growth of the Brazilian harvest.
As you can see, Brazil has been the focus of attention of agrarian markets in recent weeks. The increase in the grain harvest only strengthens its position as an exporter, especially given the weakening of the Brazilian real (1.4%), which increases the competitive conditions for sellers. For US farmers, Brazil is becoming a strong competitor, which can dramatically slow down US exports.
Soon the fall in grain prices slowed, which was caused by rising oil prices. In fact, bio ethanol remains a significant part of the market, so the stabilization of oil after an 8% fall in prices, supported spicy purchases of corn and soy.
Fracture of the price decline occurred against the background of auctions for the purchase of grain by Egypt (420 thousand tons) and Algeria (480 thousand tons), as well as against the sharp weakening of the dollar against world currencies. March 15, the US Central Bank decided to raise the discount rate by 0.25 pp. The probability of this decision exceeded 95%, so its actual adoption led to investors fixing long positions on the dollar. For two days, the dollar index fell by 1.4%, triggering a price rally on commodity assets denominated in dollars, and grain, among other things.
Cereals were supported, among other things, by the weather factor, which pointed to the risk of a weaker crop in the US due to lack of moisture and cold temperatures. In particular, the gross harvest of winter soft red wheat in the US this year may decrease to the lowest levels in 2010 - 314.325 million bushels.
However, it was not possible to actively develop the restoration. Weekly data USD on agricultural exports from the USA indicated an increase in exports of wheat and corn in the current and next marketing years compared to the previous week (ending March 2), and a drop in soybean exports. At the same time, the volume of grain sharply increased in all three crops, subject to redemption and/or cancellation of the previous transactions: for wheat - by 20%, for corn - 110%, for soybeans - 208%.
In general, the grain market is at a crossroads. Hedge funds actively close long positions after data on the growth of the market surplus and high carry-over balances. Moreover, the introduction of 130% protective tariff duties by 130% for Russian wheat and corn from March 15, may lead to the need to lower the price of Russian grain, for its implementation in other directions, which will affect prices in the Black Sea region and may squeeze world prices.
The next week is not expected to be an important statistics for the grain market, following the general background and weather factor. Only unexpected data can give an impulse to the market. We also follow the currency trends of the countries of the main exporters and importers.
For May futures, we lower the benchmark of the trade corridor for the next week: wheat to 420-460 USD/100bush, for corn at the level of 355-375 USD/100bush, soybeans - up to 975-1040 USD/100 bush.
