This support is beneficial for investors who hold a long position on a market. Due to the recent support in global markets, some commodities have moved towards backwardation. This is when a futures price curve is on a descending slope, and the current value right now exceeds the futures price of a commodity.
As you can see in the graph above, the price of soyabeans and rapeseed pre-harvest are less than the current spot price. This backwardation is due to underlying conditions in a market getting tighter. Further to that, spot markets are reacting to potential future supplies too.
With on-going weather issues in South America, supplies for both soyabeans and maize could be less than anticipated. Holding a futures position when the market is in backwardation means that the value of the futures contract will rise to meet the spot price.
This will achieve a positive roll; this is when you gain from selling one futures contract and buying another. This positive roll increases the incentive for investors to hold a longer position in a commodity market. With the UK currently trading at import parity, we are encapsulating these global gains.
However, this could change if domestic production rebounds next year, potentially moving the UK to an export parity position. There is currently a discount for new crop UK wheat futures as a larger crop is expected. This is greater than values seen in Global weather and crop development in the Northern Hemisphere throughout spring will determine new crop prices.
We could see technical support in our new crop prices and rise to meet spot prices if crop development issues ensue, but equally reduce if crops develop well. You can subscribe to receive Grain Market Daily straight to your inbox. Simply fill in your contact details on our online form and select the information you wish to receive. Visit the Keep in touch page.
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Vaccine optimism, reflation expectations, and a weak USD have all lifted commodities. Corn, a food staple, has been no exception. The good times to end? However, Bloomberg Intelligence see this trend coming to an end. Here is their thinking: 1. Corn in backwardation Backwardation is hitting the extremes with the one year curve reaching the most extreme valuation since and Bullish commodities are seen as bearish innovation drivers.
Get the Forexlive newsletter. Many in the industry expect USDA to increase exports, but by how much? And how quickly will they do it? Skip to main content. Content ID Corn, soybeans closed mostly lower Friday. By Mike McGinnis. Read more about Crop Markets. More Crop Markets. Corn, soybean prices start the week lower Monday, November 8, All Crop Markets.
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