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Agri commodities down in August, but milk and cheese buck trend


As the ongoing cost-of-living crisis continues to persist alongside high levels of food inflation throughout the UK, traders will be interested to note that the price of soybean, wheat, and corn have been falling in value, highlighting a long-awaited correction to pricing on the food market.

We note last week in our analysis of the wheat futures market that despite Russian attacks on Ukraine’s wheat export infrastructure, overall wheat futures prices have been dropping this summer.

This comes during a period in which food inflation has retreated to its lowest level this year, coming at 13.4% in July – a fall from its rate of 14.6% in June. Though this shift signals respite, the global soft commodities market is still expected to drop even further.

According to Kate Leaman, chief market analyst at AvaTrade, the price of soft commodities is currently falling due to wetter and cooler weather conditions in recent weeks in the Midwest, which have increased prospects of a good harvest for the trio of soybean, wheat, and corn.

“These conditions are as a result of the weather phenomenon known as El Niño, which brings about increased rainfall to North America,” Leaman explained. “This has resulted in the output for all three commodities in both Canada and the USA actually benefitting from the heavy rains brought about by El Niño. As these countries are two of the largest global exporters of the commodities, this has seen prices fall.”

What’s more, as the world’s largest supplier of soybeans, Brazil has proved itself a formidable competitor in the global market.

Soybean output from the South American country is estimated to be approximately 4% higher at 163.5 million metric tons compared to the prior season due to gains in acreage and yields, resulting in a lower soybean price.

Elsewhere, the favourable weather conditions in Brazil have helped farmers in the country maintain a good harvest pace, boosting the production of both corn and wheat. In fact, per the USDA, Brazil’s corn crop production is expected to have risen around 14% Year-over-Year (YoY) for the month of July.

This is setting up for some interesting short side commodities price action on agri futures as we move deeper into August.

Milk and cheese futures buck softs trend in August

On the long side, traders should keep an eye on milk futures, which don’t get talked about very often, but can be found on some CFD trading platforms. Class III milk futures were up over 25% over the last 30 days, displaying some very uncharacteristic price action for dairy. Class III milk represents cow’s milk used mainly to make cheddar cheese. One contract contains 200,000 lbs of class III milk.

Just looking at the CME price action on milk futures last Friday, all contracts were up as far out as the March 2023 contract. Cheese blocks were also up. Milk prices had been in steady decline all through the first half of the year, prompting much doom and gloom in the dairy sector.

Both milk and cheese were among the top performing soft commodities in the last 30 days and the prices we are seeing here represent a considerable trend reversal.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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