CHICAGO, April 15 (Xinhua) -- Chicago Board of Trade (CBOT) agricultural futures edged higher this week. Chicago-based research company AgResource looks for extreme trade to continue based on the uncertainty that surrounds the Russia-Ukraine conflict amid rising inflation in the United States and the rest of the world.
The United States reported an annual inflation rate of 8.5 percent in March, the highest since 1981. Analysts said the U.S. central bank in its early May meeting would raise interest rates by 0.5 percentage point and could move up 0.75 percentage point to tame the raging inflation. In the meantime, the chances for a quick settlement of Russia-Ukraine conflict are dim. A lengthy conflict will have sanctions expanding to Russian energy and agricultural products. The longer the conflict drags on, the more bullish energy and grain markets will be.
AgResource stays bullish of commodities, but warns against chasing rallies, saying the market should be made to play the role of correcting overbought technical conditions for new entry points.
Corn futures rallied to new contract high settlements this week. May contract continued to add premium amid worrisome Brazilian dryness and firm interior basis levels. U.S. and global corn stocks/use will tighten further in 2022-2023 unless peace is reached in Ukraine by late spring. AgResource holds that weather will add to the already extreme volatility by late April, but there is nothing to suggest that any lasting bearish pattern is imminent.
Most importantly, domestic end user margins, whether in the livestock or industrial sectors, are profitable. Unlike a year ago, alternative feed markets such as feed wheat and barley are priced well above U.S. corn. South American exporters will begin to trim the U.S. share of world feed trade from June onward.
Not until there are signs of negative margins or until there is confirmation of perfect Midwest weather will there be meaningful premium extraction. May contract is forecast to test 8 U.S. dollars prior to expiration, and December contract will follow. AgResource suggests investors use profit-taking corrections to lock in summer/early autumn supply needs.
U.S. and European wheat markets ended higher this week. In Europe, the market is beginning to understand that the burden of replacing Black Sea exports in the second half of 2022 falls on EU exporters. The U.S. market this week added weather premium, and a pattern of regular precipitation will be needed throughout May to avoid hard red winter (HRW) wheat yield loss of 10 percent to 15 percent. A more volatile market lies ahead as weather adds to Ukrainian conflict uncertainty. The market must readjust further to the upside once it is known new crop Black Sea exports will be minimal.
A peaceful end to the Ukrainian conflict is increasingly unlikely in 2022 as Russia renews its military focus on eastern Ukraine, according to analysts. As such, a return to normal Black Sea grain flows is not anticipated. Additionally, wheat yields in North Africa and the Middle East will be down sharply year on year, which adds to implied global demand in 2022-2023. Wheat charts are turning bullish. AgResource suggests using modest corrections to add to supply coverage, fearing the fair value may rise to 12-14 dollars from July onward.
Soybean futures held a narrow range but moved higher during the holiday-shortened trading week. Geopolitical events along with tightening global supplies continued to provide long-term support for CBOT soybean futures.
U.S. soybean export inspections last week rose to a 4-week high and marked the seventh consecutive week that inspections were above last year. Moreover, Brazilian soybean exports during the same week were 25 million bushels less than the previous week at 75 million bushels, the lowest since February.
Soybean oil paced the rally as world vegetable oil markets tightened, which lifted CBOT crush spreads and soybean futures. Global vegetable oil markets are tight, which looks to underpin both soybean oil and global cash markets on corrections.
AgResource's long-term market view is bullish on corrections.