Commodity market overview: July 2017

Global wheat production estimates were left nearly unchanged in the July report and are now forecast at 737.83 million metric tons for the 2017/18 season year, down 2.2 percent from the previous year. World consumption estimates saw an immaterial upward revision of 0.51 million metric tons and are now expected to demonstrate a 0.5 percent year-over-year decrease. Revised 0.2 percent lower from the June estimate, global ending stocks are now estimated at 260.6 million tons, up almost 1 percent from the previous season year.
Following the significant short covering in late July, wheat prices have been trending sharply lower as there was reluctance to accumulate long positions after non-commercials switched to their first net long position on wheat futures since late 2015.

There were no significant changes to the corn market outlook in the USDA July report. Global production levels are still forecast lower despite the 0.5 upward revision from June and are now expected to decrease 3 percent year-over-year. With no material changes to consumption estimates from the June report, global consumption is expected to demonstrate a 0.9 percent year-over-year increase to 1.064 billion metric tons. Ending stocks estimate were raised by 6.48 million tons from the June estimate and are now projected to decrease 11.73 percent year-over-year. Despite the recent price weakness, large traders continue to have significant net long exposure to corn futures.

After a 419 thousand metric ton upward revision in July, global soybean production is projected to show a 1.9 percent decrease in the 2017/18 season year. Revised 700 metric tons higher from the June estimate, soybean crush is currently projected to increase 4.06 percent year-over-year. With global inventories revised higher in July, 2017-18 ending stocks are now expected to demonstrate a smaller 1.3 percent year-over-year decrease. Despite the July 25 USDA drought report that indicated that a total of 14 percent of U.S. soybean acreage was suffering from draught conditions, large traders were not too willing to increase their net long exposure following the recent short covering in late June. 

Revised slightly higher in July, 2017/18 soybean meal production is now projected to increase 4.3 percent year-over-year. Influenced by continuously rising consumption levels in China, global demand was revised slightly higher and is now expected to total 234.85 million metric tons, up 5.5 percent from the last year. In the meantime, a 757 thousand metric ton revision in global stocks – mainly influenced by an inventory build-up in Argentina and Brazil – brings the expected decrease in global stocks to 4 percent vs. a 9.5 percent decrease projection in the June report. 

More than offsetting the U.S. production estimate cuts, upward revisions for rice production in the major producing countries of India, Thailand and Vietnam resulted in a global production estimate of 483.66 million tons. Despite the 0.5 percent upward revision from the June estimate, global production for 2017/18 is forecast to remain nearly unchanged year-over-year. With the world consumption estimate remaining nearly unchanged from June, it is now forecast to demonstrate a 0.3 percent year-over-year decrease to 479.64 million tons in 2017/18. 
As a result of a short covering rally that started at the end of April, raw rice futures appear relatively overbought technically and are now witnessing rising commercial selling levels. 

In July, USDA forecasts for global cotton production in season year 2017/18 were revised 0.5 percent higher to a total of 115.36 million bales. With import and export forecasts remaining nearly unchanged, domestic consumption – estimated at 117.03 million bales - saw an upward revision of 0.44 percent attributable to growing Indian demand. Following the downward revision of U.S. ending stocks estimate, country’s ending stocks are now forecast to demonstrate a 2.1 million bale year-over-year increase. However, due to upward revisions for other major consumers, global ending stocks are now expected to decline to 88.73 million bales for the 2017/18 season year.
Following the recent sharp price decline driven by higher production level expectations, commercial hedgers have been less eager to open short positions lately, Bloomberg CFTC data implies. As the price of cotton is starting to stabilize, reports of excess rainfall in India - 3rd largest exporter and the 2nd largest domestic consumer per the USDA - might contribute to the latest uptrend in the coming months.

There have been no significant changes to USDA sugar outlook since May. Following the recent Brazil government’s decision to cut the Pis/Cofins tax on ethanol, sugar/ethanol parity reportedly fell to 14.20 cents a pound, raising the possibility that sugar production might become less attractive to Brazilian producers should the ethanol prices appreciate later this year, AgriMoney wrote July 31. Following the seasonal tendency to appreciate through the later stage of the year, sugar futures have been demonstrating a strong reversal since late June. Although the move has been accompanied by a decrease in larger traders’ shorts, non-commercials maintain their net short exposure for now. Open interest has been in a gradual decline since the soft commodity reached its 2016 highs.  

According to the June 2017 USDA report, global coffee production is forecast to demonstrate a mere 0.1 percent increase and reach 159.3 million bags. While the USDA 2017/18 estimates suggest a 2.1 million bag increase in global consumption, ending inventories are forecast to decline by 1.1 million to 34 million bags. Following the sharp correction in June, coffee futures have seen a significant decrease in open interest. Having bottomed at 113 cents per pound, coffee futures have demonstrated a sharp reversal fueled by a fast-paced short position liquidation. Although the non-commercial speculators remain net short the commodity, the C contract remains in an uptrend amid the reports indicating that Brazilian producers are waiting for higher prices to begin selling.