A commentary on UK inflation and the AG markets, from Craig Turner, senior commodities broker with StoneX Financial Inc., Daniels Trading Division.
UK inflation data out on Wednesday showed inflation at 10.1% in July, a 40-year high for Great Britain. Food and energy costs are the main driver for the inflation increase. What is interesting about Europe right now is their ag and energy policies are not focused on bringing ag and energy prices lower.
Overnight volumes have been low all week as the excitement levels have subsided in the ag markets. Wheat is finding some support today after leading the market lower this week with spring wheat harvest around the corner from the US, Canada, and Russia. Ukraine's winter wheat harvest is 91% complete at 17.4 MMTs. Total grain production is expected to be about 50 MMT, down from 86 MMT last year.
Argentina's 2021/22 corn crop production has been bumped up 3 MMTs to 52 MMTs. Brazil estimates for 2021/22 corn production is at 115.8 MMTs and the USDA is at 116. For new crop the International Grains Council cut 2022/23 world corn production by 10 MMT due to losses in US and EU but global wheat production will rise by 8 MMTs due to expanding acres and better yields.
The bias for corn and wheat is still lower for the next few weeks. Seasonal bottoms for corn tend to form in mid September. US and EU weather is a bullish possibility but Spring Wheat harvest will pressure the market as will increased export capacity out of the Black Sea.
Canola and soybeans are lower as Aug and Sept weather forecasts improve for crop development. This is the time of year when weather premium comes out of the market as crops are made. The highly followed ProFarmer tour or Midwest corn and soybeans begins on Monday. The tour comprises of two groups that covers most of the Midwest over four days. The eastern group starts in IN and then heads into IL, eastern IA and then turns north into southern MN. The western group starts in southern SD or northern NE, heads south in NE, turns east into western IA, and finally heads north to meet the other group in southern MN.
Today's price action should be range bound. Next week could be exciting with the crop images on twitter and the subsequent yield estimate speculation in the ag community. Based on the conversations I have with farmers in the Midwest I would not be surprised if the production is better overall than what many of the bulls believe.
I like putting on bearish positions for Nov 2023 soybeans at these prices for next year. I like buying put spreads and selling call spreads for Nov 2023 soybeans. During the year, there may be weather market periods when we want to be long futures against the short option positions, which is a good way to play the seasonal turbulence of long-term hedges. The idea is we put on Nov 23 hedges now and then get delta neutral with futures during traditional weather market periods.