Trend of ARG Soybean futures inverts

Trend of ARG Soybean futures inverts

The supply needs of the local market put pressure on the prices of spot deliveries, surpassing values of the deferred oilseed deliveries. Investment funds reduce their long positions in coarse grains.

Crop cycles are affected throughout the year by different factors, such as the climate in critical periods of crop development, the amount of moisture in the soil for planting, and the absence of rain, for the harvest. These phenomena determine the dynamics of the markets. Because of this, during harvest it’s the supply that effects market pressure, while—once it’s over—the demand will acquire a more predominant role.

In the grain market, harvest pressure pushes prices down as supply is suddenly (and greatly) increased. Later, prices tend to gradually increase as the demand’s purchase needs reduce availability. 

Nonetheless, the current situation of ARG soybean defeats logic, and escapes the standard theoretical scenario. Despite the fact that the oilseed harvest has already taken place, in the last few days local prices of futures have registered a sort of “inverted curve”, with prices decreasing as the delivery months progresses. This situation indicates that there is demand for spot deliveries, and that the typical bottlenecks that currently exist should die down. Likewise, it should be taken into account that the international context is not unrelated to this fact, since there are expectations of lower prices due to the US crop coming into the market.

As for corn, the situation is in line with what has happened in recent years. However, the importance of analyzing the interest rates resulting from the comparison of futures prices and the spot value should be highlighted, since this value reflects to a certain extent the grain supply needs in the different months of the year delivery.

International context

In the last few weeks, in the Chicago soybean and corn futures market, Chicago, the positioning of investment funds in oilseed complex and cereals has become very relevant. More specifically, the decrease in the volume of net purchases of these organizations in view of the presentation of the monthly report on World Supply and Demand (WASDE, for its acronym in English) by the United States Ministry of Agriculture (USDA) caused drops in the international prices of coarse grains. Furthermore, it should be noted that among the factors that also had an impact on the positioning decisions of the funds is the proximity of the upcoming US harvest, which comes with seems promising despite having gone through some periods of drought and hot weather, and the increases in benchmark interest rates in the US as a measure to counter inflation.

For soybeans, between June 14 and July 26 (a month and a half) the equivalent tons went from 22.2 Mil MT to 11.9 Mil MT respectively. This variation implies a 46.2% drop in the volume of net purchases, reaching the lowest holdings since December 2021. In terms of prices, we can say that there were considerable decreases between the beginning of June and August, since that the largest volume contract went from exceeding 630 UDS/MT to around 520 USD/MT, implying a decrease of close to 110 UDS/MT (-17.3%) between both dates.

Also, the buying and selling decisions of the investment funds are in tune with the soybean situation, although the level of net purchases is at its lowest since 2020. Since the end of March (last annual maximum) to date, there has been a decrease in purchased positioning of almost 63%, going from a tonnage equivalent to 48.7 Mil MT to 18 Mil MT. To find a position similar to the current one, we’d have to go back to October 2020, when there was strong buying momentum among funds, which came out of a negative net position following the impact of the COVID-19 pandemic.

Regarding the maize prices, the contract with the highest volume operated in Chicago is currently at its lowest since January, although it reached values equivalent to December 2021, for which it can say that the prices showed minimums in at least 8 months. More specifically, from mid-June where we had a value of 302 USD/MT to the first days of August where we reached prices of 241 UDS/MT, we have a decrease of almost 61 USD/MT, implying a variation of -20%.


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