What a Month we had in the commodity sector: globally the Month of July 2015 was the worst month for commodities since the Financial Crisis.
The Wild Card
Still, Corn was really an outlier because its Supply and Demand tables were impaired by the wild card weather factor in the Eastern part of the corn belt.
The Bloomberg chart shows that Chicago December Corn prices are down 75 cents/bu below July 14 peak.
But HERE is the thing: gravity works also in the time price inventory horizon:
Brazil and South America have shown a much stronger peak grain export season than last year.
Over the past 8 weeks, 195 cargoes ECSA cargoes have come to the market. +50% Y-T-Y
A Weaker Brazilian economy has decreased its demand affecting for food and ingredients business and a weaker currency, but it is really the U.S weather wildcard has supported Brazilian selling.
ISNT a nice coincidence Dec Chi Corn has shed 15% in less than 15 days ?
Ultimately, the July oddity in the grain market has enabled commodity traders to fill orders (but more from anxious buyers than cooperative sellers).
Vessel docked in Brazilian port of Santarem has been said to be shipping corn to Wilmington, Delaware. (but strictly speaking, this is not an arbitrage in corn between Brazil and the U.S).
Cargill’s Santarém port terminal where Nearly 95 % of that grain arrives in barges from the neighboring state of Mato Grosso and about 5 % comes by truck from farmers in the state of Pará.
The dilemma in commodity trading is about matching sales orders with purchases (which will rarely happen in the real world because sellers and buyers have diametrically opposed views about what is a fair price !)
Ultimately for Cargill and others who facilitate this function, the outcome in Q4 is co-dependant on how fast during October and November they will replenish their inventories vs their what crop and how they plan they plan sell and deliver. (it is the monumental task)
Everyday even the most sophisticated pro has to remember that in the horizon there is two people in the market. There is a bid, there a ask. Froth is always there, other than that no risk premium is justified.