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Zawya
12-06-2025
- Business
- Zawya
What's up with the wacky CBOT corn spreads?
(The opinions expressed here are those of the author, a market analyst for Reuters.) NAPERVILLE, Illinois - U.S. corn supply estimates for the waning 2024-25 marketing year have been dwindling in recent months, though a notable rebound is expected for 2025-26. But the futures market might not be reflecting these trends, leading many to wonder if old-crop stockpiles are actually larger than the government has predicted. Normally, that supply trajectory might put Chicago futures in an inverse, where old-crop corn is pricier than new-crop. But so far this month, CBOT July corn has traded at an average of around 3 cents per bushel cheaper than December corn , reflecting a small carry in the market. Analysts think the U.S. Department of Agriculture on Thursday will trim its forecast for 2024-25 U.S. corn ending stocks to 1.392 billion bushels, rendering stocks down 21% on the year. In past Junes, such a decline in corn stocks has been associated with July-December inverses exceeding 50 cents. The closest comparison in terms of stock declines would be 2018, when July-December corn traded at a 21-cent carry during the first two weeks of June. At that time, U.S. 2017-18 ending stocks were pegged to ease 8% on the year, but the actual estimate was more than ample at 2.1 billion bushels. This demonstrates that contracting year-on-year supplies can be associated with market carry in June. Additionally, there are examples (2008, 2018) where this carry existed despite a reduction in stock estimates over the previous several months. Still, the current setup may suggest that either July futures are too cheap versus December, old-crop stocks are being understated, or some combination of both. PARSING PROBABILITIES Given the present market structure, what might this mean for old-crop corn stocks – and trade expectations – moving forward? If old-crop stocks are too low, it may not come to light on Thursday. There is no relationship between the old-new crop futures spread and the trend in USDA's old-crop ending stock estimates from May to June. Fast-forward to June 30, when USDA publishes its June 1 stock survey, and the chance for a bearish bomb increases. Since 2008, whenever July-December corn traded near flat or in a carry during early June, analysts underestimated June 1 corn stocks about 73% of the time. On the flip side, analysts underestimated June 1 corn stocks in just one out of six years when old-new crop corn featured a strong inverse relationship. Since 2008, there is also a 73% hit rate for final corn ending stocks to be the same or higher than was estimated in June whenever July-December corn traded near flat or in a carry during early June. This same early June spread, however, does not suggest that final ending stocks will be bearish as the trade has gone on to both underestimate and overestimate September 1 corn stocks. WAKE ME UP WHEN SEPTEMBER ENDS The outcome is still wide open for the end of September, when USDA will publish final 2024-25 corn ending stocks. But right now, CBOT corn for expiration in mid-September is the cheapest of the bunch. July-September corn is trading at an inverse averaging 12 cents per bushel so far this month, which is unusual given the slight carry in July-December. The historical relationship between these spreads suggests that one or both are a bit out of sync. With multiple anomalies in the futures market setup having been identified, this might simply mean that 2025 is an outlier year. And if that's the case, historical odds may be increasingly less reliable from here. Karen Braun is a market analyst for Reuters. Views expressed above are her own. Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X. (Writing by Karen Braun; Editing by Matthew Lewis)
Zawya
15-05-2025
- Business
- Zawya
Light Chinese soy imports should raise eyebrows: Braun
(The opinions expressed here are those of the author, a market analyst for Reuters.) NAPERVILLE, ILLINOIS - China's soybean imports recently dipped to a 12-year low, and trade estimates suggest the overall intake pace could still be sluggish by mid-year. But top supplier Brazil has harvested a record crop and its latest export volumes to China have hit all-time highs. So how does this all fit together? For one, soybean import data from Chinese customs has not recently aligned with supplier export data, so much so that the U.S. Department of Agriculture last year stopped using China's customs data for its estimates. And in a slightly satisfying twist for U.S. soybean exporters, Chinese buyers may have been able to use a few extra U.S. bean cargoes several months back during the peak U.S. shipping season. But that might not be the case this time around. SCENARIO RUNDOWN China's customs reported March-April soybean imports at just 9.6 million metric tons, down 32% on the year and the smallest for the period since 2013. That held China's total imports through the first seven months of 2024-25 to a six-year low. The laggard pace owes partially to extended clearance times at customs, something not necessarily new to Chinese importers. Brazil also recently reaped a record soybean crop, but harvest delays and logistical issues slowed the export ramp-up that typically begins in February. Brazil's February-April shipments to China still notched an all-time high, some 13% more than the year-ago record. But since the start of the U.S. marketing year in September, U.S. bean exports to China are at a 12-year low aside from the two previous trade war years. Additionally, Brazilian volumes to China between September and January were down nearly 40% on the year. This might explain some of the shockingly low Chinese import numbers, which have strained domestic processing and tightened soymeal supplies. Perhaps Chinese buyers were too lax in the anticipation of Brazil's monster crop, and some additional U.S. purchases might have filled some gaps. Given the trade data discrepancies, though, analysts should monitor the monthly Chinese customs numbers to ensure the recent record shipments are actually showing up in the data. CLASHING FORECASTS Analysts peg China's May and June soybean imports to reach roughly 11 million tons apiece to ink a new record for the period, up 3% versus last year. But that would still keep year-to-date imports at six-year lows with just three months left in the marketing year. This is somewhat peculiar as China accounts for more than 70% of Brazil's soybean exports, which are expected at all-time highs this year. Record Brazilian exports could indeed blow China's forecast, especially because Brazil's late start plus a possible May slowdown mean that elevated export volumes could persist well through mid-year. This week, China boosted its 2024-25 soy import estimate to 98.6 million tons from 94.6 million previously. The new 2024-25 outlook would allow China's July-September imports to fall 9% from the year-ago record if assuming the analyst estimates for May and June. That doesn't exactly fit with the meaty Brazilian export narrative. USDA estimates China's 2024-25 imports at 108 million tons, down from 112 million in the previous year. The agency has maintained import figures above the official Chinese ones for a couple years now as exporter data suggests China's figures are too low. And they have indeed been too low, evidenced by the bump in China's 2024-25 import target, which was first issued a year ago. The estimate might still be light as China's import numbers for the last two seasons rose even further from this point, the 2023-24 figure by another 9%. But here's where the news might turn grim for U.S. soybean exporters. Brazil's late start to shipping means that elevated volumes could extend into September or October, when the U.S. soy season usually starts to build. This phenomenon has cut into U.S. export potential in past years. That situation could be optimal for China in its effort to reduce reliance on American soybeans, potentially offering Beijing leverage in the trade war with Washington. Karen Braun is a market analyst for Reuters. Views expressed above are her own.
