Ag slides
Upcoming SlideShare
Loading in...5
×

Like this? Share it with your network

Share
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
197
On Slideshare
197
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
2
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Fundamental Factors AffectingAgricultural and Other CommoditiesResearch & Product DevelopmentFebruary 2011
  • 2. Outline• Review of key supply and demand factors affecting commodity markets• World stocks-to-use levels for corn, wheat and soybeans• Current events impacting corn, wheat and soybean prices• Impact of U.S. dollar depreciation on commodity prices• Global growth of agricultural futures market• Index fund positions as a percentage of open interest• Non-commercial positions and their correlations to price changes• Margin and speculative position limits© 2011 CME Group. All rights reserved 2
  • 3. Highlights• Our Markets are Working• Many Factors Affect Commodity Prices• Basic Supply and Demand Principles • Weather and disease limiting supply • Growing demand from developing countries • Higher input costs related to increasing energy prices • Falling U.S. dollar • Biofuel production increases • Limited additional farmland in the short run • Restrictive export policies from some major exporters• No Evidence Index Funds or Non-Commercial Participation is Adversely Affecting Grain and Oilseed Markets • Index fund participation has decreased or remained steady • Non-commercial participation in our markets has low correlations to recent changes in prices© 2011 CME Group. All rights reserved 3
  • 4. Agricultural Commodity Stocks Are Extremely Low World Current ratio versus the 10-year average ratio:Stocks-to-Use Ratio Corn at 13% vs. 17%40% Wheat at 21% vs. 24% Soybean at 19% vs. 22%35% Soybean30% Wheat Corn25% 21%20% 19%15% 13%10%5%0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 * © 2011 CME Group. All rights reserved 4
  • 5. U.S. Planted AcresCorn and Soybean planted acres are at record levels as the industry attempts tokeep pace with increasing world demand. 100 USDA January Estimate 90 88 80 77Millions of Acres 70 60 54 50 40 Corn Soybeans All Wheat 30 © 2011 CME Group. All rights reserved 5
  • 6. Events Impacting Corn Prices Since January 2008 $8 Global supply concerns increased as consumption rises faster than production. World stocks-to-use ratio at historical low in 2008 at 12.6%. Corn prices surged during harvest in 2010 as reports filtered in from farmers that yields were far below trend line estimates. Early estimates were looking for a yield of 164.7, but the December 2010 USDA estimate was ratcheted down to 154.3 bushels per acre. $6Dollars per Bushel Corn prices remained range bound for most of 2009 as a weak U.S. dollar, reduced feed demand and a larger than expected U.S. crop kept prices in check. $4 Overall macro economic weakness adversely affected commodity prices during the last half of 2008. Corn Price 30 Day Avg $2 © 2011 CME Group. All rights reserved 6
  • 7. Events Impacting Wheat Prices Since January 2008 $13 Severe drought hit the FSU damaging a Spring wheat supplies almost depleted prior to majority of the region’s crop. This led to harvest leading to a record high for all wheat a wheat export ban from the world’s classes. Prices then consolidated nearly 30% third largest wheat exporter. In addition $11 as prospects for a successful harvest relieved to this, Australia’s crop was heavily supply concerns. damaged again due to drought conditions in some areas and major flooding in other wheat growing territories. $9Dollars per Bushel Wheat prices remained primarily range bound for most of 2009 as a weak U.S. dollar and increasing world production kept prices from surging. $7 Overall macro economic $5 weakness adversely affected commodity prices during the last half of 2008. 30 Day Avg Wheat $3 © 2011 CME Group. All rights reserved 7
  • 8. Events Impacting Soybean Prices Since January 2008 Battle for 2008 acres and a very thin U.S. carry-out led prices to a historical high. Reports of dry conditions in South $17 America which could lead to lower Prices started inching higher following production in the region and low production numbers out of South continued demand from China led America and lower than expected prices higher in the last half of 2010. $15 planting estimates for the U.S. $13Dollars per Bushel $11 $9 Overall macro economic weakness adversely affected Prices stabilized as better than $7 commodity prices during the expected yields were reported in last half of 2008. 2009 and demand stabilized. Soybean Price 30 Day Avg $5 © 2011 CME Group. All rights reserved 8
  • 9. Weak U.S. Dollar is a Key Driver of Increasing Commodity PricesCents per Bushel Corn Prices Cents per Bushel 1400 Wheat Prices800 1200700 17% 1000600 17% 800500 600400 400300 200200 January-08 December-10January-08 December-10 Cents per Bushel Soybean Prices1800 Nearby Corn Futures1600 Nearby Wheat Futures 17% Nearby Soybean Futures1400 Currency Adjusted (U.S. Dollar Index) Nearby Futures for each respective product12001000 Corn, wheat and soybean prices would be at 800 least 17 percent lower if the U.S. Dollar had maintained its value from June 2006 600400January-08 December-10 © 2011 CME Group. All rights reserved Source: Bloomberg 9
  • 10. Index Fund Net Long Positions Have Remained Steady in Corn Futures Market Index Net Long (Short) Positions Nearby Price as % of OI Corn Cents per Bushel 70% 800 60% 700 600 Though index fund Index Net Long Positions 50%positions as a percentage 500of open interest remained 40% Cents per Bushel constant at around 20%over the last three years, 20% 400 30% 20% prices increased 25%. 300 20% 200 10% 100 0% 0 Jan-08 Index Net Long Positions as % of Open Dec-10 Interest Nearby Corn Settlements © 2011 CME Group. All rights reserved Source: www.cftc.gov 10
  • 11. Index Fund Net Long Positions Have Remained Steady in Wheat Futures Market Index Net Long (Short) Positions as Nearby Price % of OI Wheat Cents per Bushel 100% 1400 90% 1200 80% Though index fund 70% 1000positions as a percentage index Net Long Positionsof open interest remained 60% Cents per Bushelsteady over the last three 800 years, prices have been 50% 35% 35% consolidating for most of 600 40% this time period. 30% 400 20% 200 10% 0% 0 Jan-08 Dec-10 Index Net Long Positions as % of Open Interest Nearby Wheat Settlements © 2011 CME Group. All rights reserved Source: www.cftc.gov 11
  • 12. Index Fund Net Long Positions Have Declined in Soybean Futures Market Index Net Long (Short) Positions as Nearby Price % of OI Soybeans Cents per Bushel 70% 1800 1600 60% 1400 50% Index fund positions as a 1200 Index Net Long Positionspercentage of open interest 40% Cents per Bushel declined 3% over the last 1000 three years while prices 21% increased 16%. 30% 24% 800 600 20% 400 10% 200 0% 0 Jan-08 Index Net Long Positions as % of Open Dec-10 Interest Nearby Soybean Settlements © 2011 CME Group. All rights reserved Source: www.cftc.gov 12
  • 13. Changes in Non-Commercial Positions in Corn Have Low Correlations to Price Changes Nearby PriceNet Long (Short) Corn Cents per Bushel40% 80035% 70030% 60025% Non-commercial positions 500 varied over the last 3 years20% despite prices being fairly15% 400 stable. The correlation between changes in their10% 300 positions and price changes is 0.41. 5% 200 0% 100-5%-10% 0 Jan Dec 2008 Non-Commercial Net Long (Short) as a % of Open Interest 2010 Nearby Corn Settlements © 2011 CME Group. All rights reserved Source: www.cftc.gov 13
  • 14. Changes in Non-Commercial Positions in Wheat Have Low Correlations to Price Changes Nearby PriceNet Long (Short) Wheat Cents per Bushel 25% 1200 20% 1000 15% 800 Net positions for non- 10% commercial participants Cents per Bushel are primarily net shortNet Long (Short) 5% 600 despite the recent increase in price. The correlation between changes in their 0% positions and price 400 changes is 0.69. 1/8/2008 -5% 200 -10% -15%Jan Dec 0 2008 2010 Non-Commercial Net Long (Short) as a % of Open Interest Nearby Wheat Settlements © 2011 CME Group. All rights reserved Source: www.cftc.gov 14
  • 15. Changes in Non-Commercial Positions in Soybeans Have Low Correlations to Price Changes Net Long (Short) Soybeans Nearby Price Cents per Bushel 40% 1800 35% 1600 30% 1400 Non-commercial participants continue toNet Long (Short) 25% 1200 hold net long positions in Cents per Bushel soybeans. The correlation 20% 1000 between changes in their positions and price 15% 800 changes is 0.52. 10% 600 5% 400 0% 200 -5%Jan Non-Commercial Net Long (Short) as a % of Open Interest Dec0 2008 Nearby Soybean Settlements 2010 © 2011 CME Group. All rights reserved Source: www.cftc.gov 15
  • 16. Over Regulating US Commodity Markets Will Encourage Flowto the Already Active OTC Markets and Overseas Exchanges • The amount of outstanding OTC “Other” declined by almost 68% for the second half of 2008. • This sharp decline was tied to the overall weakness in commodity prices since the middle of 2008 • Over 68% of exchange traded commodity derivatives are now traded in oversea markets. Amounts Outstanding of OTC “Other” Commodity Annual Volume Turnover Forwards, Swaps, and Options (including energy) for Exchange Traded Commodity Derivatives 14,000 12,580 1,800Amounts Outstaning in $ Billions Number of Contracts in Millions 12,000 1,600 1,400 10,000 1,200 7,861 1,000 8,000 800 6,000 600 4,032 4,000 3,194 400 2,521 2,434 200 2,000 0 2006 2007 2008 2009 2010* 0 Overseas Markets US Markets Dec.07 Jun.08 Dec.08 Jun.09 Dec.09 Jun.10Source: BIS *Through September 2010 © 2011 CME Group. All rights reserved Source: BIS 16
  • 17. Margin Levels Have Increased As Volatility Has Increased $2,500 Corn 70% Margins are highly correlated with price 60% $2,000 volatility, which has been at record highs Volatility 50% given low stocks-to-use ratios and growingMargin $1,500 40% global demand. $1,000 30% 20% Corn Volatility $500 Wheat Volatility 10% Soybean Volatility $0 0% Margin $7,000 80% Wheat Soybeans $6,000 70% $5,000 80% $4,500 60% 70% $5,000 $4,000 50% 60%Margin $4,000 Volatility Margin $3,500 Volatility 50% 40% $3,000 $3,000 $2,500 40% 30% $2,000 $2,000 30% 20% $1,500 $1,000 20% 10% $1,000 $500 10% $0 0% $0 0% 17 © 2011 CME Group. All rights reserved 17
  • 18. Margin Levels Have Already Been Increased Margin as a % of Contract Value $2,500 Corn 12% • Margins as a % of contract value increasedMargin 23% in corn, 46% in wheat and 34% in $2,000 10% soybeans since January ‘08. 8% • Currently, margins as a % of contract value $1,500 6% are 6.44% in corn, 8.50% in wheat and 6.30% $1,000 in soybeans. 4% Corn Margins $500 2% Wheat Margins $0 0% Soybean Margins Margin as a % of Contract Value $7,000 18% Wheat Margin as a % of Contract Value Margin as a % of Contract Value Soybeans $6,000 16% $5,000 12% 14% $4,500 $5,000 MarginMargin 10% 12% $4,000 $4,000 10% $3,500 8% $3,000 8% $3,000 $2,500 6% 6% $2,000 $2,000 4% 4% $1,000 $1,500 2% $1,000 $0 0% 2% $500 $0 0% © 2011 CME Group. All rights reserved 18
  • 19. Speculative Position Limits for Ag Markets Have NotIncreased Since December 2005• Speculative position limits are federally mandated in CFTC Reg 150.2. They are determined by a formula and have not been increased since Dec 20051.• Spot Month speculative limits have not changed during this time. They are 600 contracts for Corn, Soybeans, Wheat, and Oats; 540 contracts for Soybean Oil; and 720 contracts for Soybean Meal. 1 Single month and all month combined speculative position limits must be no greater than 10% of the average combined futures and delta adjusted month end open interest for the most recent calendar year up to 25,000 contracts with a marginal increase of 2.5% of the remaining open interest thereafter.© 2011 CME Group. All rights reserved 19
  • 20. Summary• When basic supply and demand principles are studied, it is clear that many factors affect commodity prices• There is no evidence that the participation of non-commercials is adversely affecting grain and oilseed markets – Speculators help form efficient, liquid markets – Speculators have continued to hold relatively constant percentages of open positions in most markets• CME Group’s commodity products serve as the benchmark for the world and these markets are working• Over regulating US markets will encourage additional flow to growing OTC commodity markets and overseas exchange traded commodity products• Speculative position limits for ag products are federally mandated and have been unchanged since December 2005• CME Group’s commodity products serve as the benchmark for the world and these markets are working © 2011 CME Group. All rights reserved 20