Page 142 - Food Outlook

recovered from its multi-year low around the same time to stabilize at about USD 50 per barrel. Record-setting equity prices in the US have seemingly had negligible effects on commodity prices. All in all, markets could be characterized as rather featureless, tinged by complacency.
FORWARD CURVES
Forward curves for wheat and maize displayed abnormally steep upward sloping (contango) price configurations extending to December 2017. For maize, the December 2017/December 2018 spread exhibited USD 18 per tonne carry versus USD 16 and USD 8 per tonne carries respectively for the previous two years. For wheat, the 2017/December 2018 spread displayed USD 29 per tonne carry versus USD 28 per tonne and USD 14 per tonne carries, respectively, in the previous two years. These wide curves, besides reflecting ample inventories may also reflect three consecutive years of declining farm income. Very low basis levels in the domestic market indicate that producers have been willing sellers of wheat and maize (as well as soybeans) despite low prices, possibly indicative of tight cash flows. The forward curve
for soybeans, reflecting the harvest-time norm over the last several years, was slightly inclined – exhibiting a USD 4 difference for the November 2017/November 2018 spread versus a small carry of USD 1 (contango) for the November 2016/ November 2017 spread.
VOLUMES
Trade volumes, which reached record or near record levels for wheat, maize and soybeans in 2016, were poised to match or exceed those levels for wheat and maize but projected
to decline by about 15 percent for soybeans. Similar to last year, when prices were seeking market clearing levels while exhibiting low volatility, volumes defied the conventional wisdom that low prices deter trading interest. However, trading has been increasingly generated by algorithmic programs (about 50 percent according to the CME) which often seek small anomalies across several markets and increasingly operate without human supervision. Additionally, open interest (the number of outstanding contracts at a given point in time for a futures contract) increased for maize and soybeans futures markets year-on-year (y/y) and for all three commodities when options on futures were included. Options trading increased y/y by almost 30 percent for maize and soybeans, and 16 percent for wheat. This probably reflects the rising electronic trade in these markets – now representing 70 percent – which have been slow to migrate away from the “open outcry” mode of trading.
Forward curves snapshots as of October 2015, 2016 and 2017
USD per tonne
200 190 180 170 160
150 Dec
2015
2017
2016
170 160 150 140
130 Dec
USD per tonne
390 380 370 360 350 340 330
March
March May
Wheat
USD per tonne
Maize
2015 2017
2016
May July Sept Dec
Soybeans
2017
2016
2015
March
May July
Sept Dec
March May
320 Nov Jan Mar May Jul Aug Sept Nov Jan Mar
136 FOOD OUTLOOK NOVEMBER 2017
Market indicators