WASDE shocker boosts corn and soybeans

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The grains sector, measured by the Bloomberg Grains Index, has reached a fresh 17-month high thereby continuing the strong rally that started back in August. The latest jolt higher was provided by the U.S. Department of Agriculture after it said that U.S. corn and soybean stockpiles at the end of the 2020-21 marketing year will fall to their smallest in seven years.


What is our trading focus?

CBOT Soybeans - SOYBEANSJAN21
CBOT Corn - CORNDEC20
CBOT Wheat - WHEATDEC20
AIGG:xlon - WisdomTree Grains ETC (UCITS eligible)

____________________________________________________________________________________________________

The grains sector has reached a fresh 17-month high thereby continuing the strong rally that started back in August. The latest jolt higher was provided by the U.S. Department of Agriculture after it in a report said that U.S. corn and soybean stockpiles at the end of the 2020-21 marketing year will fall to their smallest in seven years. 

Normally the November World Agriculture Supply and Demand report (WASDE) tends be a non-event given the amount of establish clarity with regards to the production and stocks. This year, however has been anything but normal due to adverse weather and accelerated buying from China.  

The government report slashed its supply forecast for both soybeans and corn due to harvest downgrades, but also due to a surge in expectations for China’s grain-buying. For soybeans, the USDA cut its forecast for the end of season domestic inventories by 100 million bushels to 190 million, well below the forecast for 244 million. For corn, the forecast for U.S. ending stocks was slashed by 465 million bushels to 1.7 billion bushels, the lowest since 2013-14 and some 300 million bushels lower than expectations. This on a combination of a yield downgrade and a hike in U.S. exports expectations for this season to a record 2.65 billion bushels (67.3 million tons). Some of that due to reduced competition in international trade with an expected 8 million tons reduction in shipments from Ukraine after drought conditions across the country devastated the corn crop, the USDA said.

With regards to Chinese demand the USDA said the weakened expectations for Ukraine output come at a time when China’s grain import needs are soaring, thanks to the “strong recovery in the swine sector” from African swine fever losses, a revival “which has been driving feed demand higher”. The impact of the purchasing spree will be to lift China’s grain imports overall to a “record level in 2020-21 driven by demand for feedstuffs,” the USDA said.

Corn (ZCZ0) jumped 3.5% to $4.22/bu, a 15-month high while soybeans (ZSF1) settled 3.2% up at $11.46/bu, the highest in more than four years. This on the same day where the price of palm oil, the world’s most widely used vegetable oil, rose to an 8-year high on the Malaysian exchange.

The Bloomberg Agriculture Index has rallied by 23.3% during the second half, thereby outperforming the other commodity sectors. Leading from the front has been the grains sector which has risen by 25% led by the soybean complex followed by wheat.

Driven by tightening market conditions across the grain sector, the one-year roll yield has seen a dramatic shift during the past six months from contango to backwardation. This change in outlook has added fuel to the rally with speculators now receiving a positive carry for holding a long position. For years they suffered, not only from falling prices but also from a negative carry (contango) due to persistent oversupplied markets.  

Speculative buying frenzy has reached levels last seen in 2012
Some of the largest ETF's with a broad exposure to the agriculture sector
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.