By Andrew Whitelaw | Source: CBOT, MATIF
This week we have super Wednesday* ahead of us, with the release of the June WASDE report and this quarters ABARES crop report. These reports have the potential to drive the market and it is therefore a perfect opportunity to refresh ourselves with a lay of the land.
Seasonality can provide an indication of the performance of a commodity, in a similar way to deciles*. We regularly use them to show how the market is travelling at present to previous points in time, and at times we can potentially view patterns.
In these seasonality charts, rather than use a min/max for the seasonality banding (green shaded area), we use a 70% range (or 1 standard deviation). The 70% banding is used to remove the extremes in the market place, and we believe this gives a better indication of the seasonality, as opposed to a min/max which can be extremely volatile. In these charts, we also overlay the average for the timeframe and the last three seasons.
In Figure 1, the spot soft red winter wheat contract is displayed on a weekly average basis. The market continues to trade at strong levels in comparison to the past two seasons. This market has been propelled by deteriorating weather conditions in the major growing regions, unfortunately including our own backyard. The WASDE report on Thursday will likely be bullish as the recent dry weather in Australia and the black sea is taken into account. However, as the devil's advocate, will high stocks place a limit on the potential upside?
Let’s take a look at canola (or rapeseed in this case). In Figure 2, the spot MATIF rapeseed contract is displayed. The rapeseed contract continues to trade along the bottom of the range, and over the past fortnight has followed last year. The rapeseed market trades as a complex of oilseeds, including palm and soybeans, with a large degree of interchangeability between the commodities. At present soybeans in the US are in great shape with carryout from last season at strong levels. This may place pressure on futures prices and the overall global oilseed market. At a local level, the poor weather conditions and likely decline in canola planting has the potential to result in strong to very strong basis levels, especially in NSW.
*Initially this article mentioned the WASDE and ABARES report as being released on Thursday, it is actually Wednesday. I blame this on just coming back from an overseas holiday!
The USDA and ABARES report will be released in the early hours of Thursday morning. There should be downward revisions to wheat crops in Russia and Australia, although there tends to be a lag with the USDA report updating their figures.
It will be interesting to see where ABARES pitch their production estimates, at present, I would expect them to release a below average estimate.
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