Commodity market overview: October 2017

In October, the USDA 2017/18 global wheat production estimate saw another upward revision due to better crop conditions in Russia, Turkey, India, Canada and Morocco. Partially offset by lower crop forecast for Australia, estimates were raised to 751.2 from 744.85 million tons in September and 743.18 million tons in August. Despite a forecast 0.12 percent year-over-year increase in total consumption, global consumer demand for wheat is still not enough to offset higher production levels. At 739.6 million tons, total consumption is expected to exceed production levels by approximately 11.56 million tons. Global ending stocks for the 2017/18 season year are thus forecast to edge even higher to 268.13 vs. 263.14 million tons expected in September.

After topping out at approximately $4.62 per bushel in late September, wheat futures have been in a strong downtrend throughout the month of October, with large traders increasing their net short exposure to the levels last seen at the beginning of June.

There has only been a minor change to the USDA corn outlook for the 2017/18 season year in October. With the previously envisioned production decreases in Ukraine, Russia and EU countries being more than offset with increases in Nigeria, Turkey and Mozambique, global production is currently forecast at 1.039 billion tons, slightly higher from September update. Global consumption is currently projected to remain nearly unchanged year-over-year at 1.065 billion tons. Ending stock estimates were revised slightly lower from September, and are currently seen at 200.96 million tons, down 11.5 percent year-over-year. 

Following the shift to a net short exposure in late August, large traders continue to accumulate their short positions as corn has mainly traded sideways last month.

Estimates for global soybean production and U.S. season-average prices remain nearly unchanged from September. Following a minor downward revision in October, global production is currently seen at 347.88 million tons. Total soybean crush levels are currently seen at 301.25 million tons, nearly unchanged from the previous month.

Despite a mere 1.25 percent annual increase in global ending stocks, U.S. ending stocks are expected to continue increasing and demonstrate a 57.7 percent year-over-year increase in the 2017/18 season year. "If realized, ending [U.S.] stocks relative to use would be the highest since 2006/07," USDA wrote in the latest WASDE report. 

As the latest U.S. season-average price forecast for the next season year  stands between $8.35 and $10.05 per bushel, latest price action demonstrated a strong convergence towards the upper bound of the estimate. Given a notable correlation with non-commercial positioning, soybean prices have been following a strong uptrend since large traders turned bullish the commodity in early September.

In October, USDA soybean meal forecasts were nearly unchanged from the previous month. Estimated at 5.5 percent, global consumption increase is expected to outmatch production levels of 4.6 percent only slightly. Ending stocks are projected to experience a minor contraction of 0.47 million tons, down 3.65 percent year-over-year.

Due to a significant decrease in harvested area, U.S. rice production is forecast to suffer a 23 percent decrease in 2017/18, with China, Bangladesh, Egypt and Philippines contributing to the global production decrease. Partially offset by increased production levels in Thailand and Vietnam, global production is expected to reach 483.8 million tons next year, a minor decrease from this season year’s estimate of 487.13 million tons. Mainly driven by an upward revision for Nigeria, global consumption was revised slightly higher in October and is currently seen just 0.5 million tons below the previous year's record of 481 million tons. Ending stocks are thus forecast to reach 141.5 million tons, up 3 percent from the previous season year.

U.S. season-average farm price forecasts for rice remain unchanged from the last month's data. From the report: "The 2017/18 U.S. long-grain season-average farm price remains projected at $12.00-$13.00 per cwt, well above $9.62 in 2016/17. The California medium- and shortgrain 2017/18 SAFP remains forecast at $15.50-$16.50, up from $13.60 in 2016/17. The Southern medium- and short-grain 2017/18 SAFP remains forecast at $12.20-$13.20 per cwt, up from $10.20 in 2016/17. The 2017/18 U.S. medium- and short-grain SAFP remains forecast at $14.70-$15.70 per cwt, well above $12.80 in 2016/17. The 2017/18 all-rice SAFP is projected at $12.70-$13.70 per cwt, up 50 cents on both the high and low ends of the range from the previous forecast and higher than $10.30 a year earlier."

After topping at $12.90 per cwt, the rice futures contract has been in correction mode since the 2nd half of September.

As the world harvested area is set to increase 12 percent, global cotton production for the 2017/18 season year is currently seen at 120.86 million bales, up 13 percent year-on-year.  Despite the 3 percent downward revision from the September estimate, U.S. production is forecast to demonstrate a 4 million bale decrease, partially offset by a near-record upland crop of 20.4 million bales. Although the latest consumption forecasts point to a multi-year high of 118 million bales amid an annual increase of 4 percent, strong production increase is projected to result in a strong inventory build-up. The stocks-to-use ratio for the U.S. is forecast to reach 32.5 percent vs. the last year's figure of 15 percent. Global ending stocks are projected to increase by 3 percent and reach 92.4 million bales. At 60 cents, latest USDA midpoint price forecasts imply an 11.8 percent decrease from the last season. With the December delivery contract currently at $0.69 per pound, cotton futures prices have been mainly trading sideways throughout the last month.

Sugar price outlook remains challenged by bearish supply fundamentals centered on higher expected production in key producing countries of Brazil and India, as well as an abolishment of the EU sugar quotas which are set to result in a inflow of additional new supply for a market already pressured by elevated supply levels. Despite the hurricane impact on the U.S. sugar production, USDA October update noted that increased imports will more than offset the  domestic production shortfall. Total U.S. supply estimate for the 2017/18 season year was thus raised to 13.09 million metric tons, a 1.68 percent year-over-year increase. 

With large traders maintaining a minor net short exposure, the sugar futures contract has mainly been trading sideways over the last couple of months.

Dry weather conditions in Brazil have been the market's focus throughout the month of October. Despite being viewed as a potential bullish catalyst earlier, the risk of a drought has diminished as the latest rain data was more supportive of the crop than previously estimated. With large traders continuing to accumulate their short positions, the coffee futures contract remains in a downtrend.