It has been a theme on high rotation. The one where market analysts say the market can’t go down forever. The one where analysts point to the huge, short/sold position in wheat and shake their collective heads at the quirks of the market. As the unhealthy size of the short position became unwieldy, all it needed was a spark. Has that spark just happened?
For the past month, Moscow has been threatening to walk away from the Grain Initiative. Their ‘unofficial’ deadline is the 18th of May, whereas the UN and Ukraine have the agreement stretching for another couple of months. The alleged drone strikes of this week have further added fuel to a fire that needs no stoking.
The wheat market reacted initially with a limit-up move, bouncing off 21-month lows. The question will be if this lights a fuse on the long-awaited ‘short covering rally’ or if the market experiencing some kind of war-related fatigue. The UN is scheduled to meet in Moscow on the 5th of May to try and renegotiate terms. Until then, we suspect the market will be walking on eggshells.
Should the market cover the roughly 130K sold contracts, the holders of those positions will be hoping for an orderly exit. Short-covering rallies can be quite explosive if everyone rushes for the door. While they may be explosive, they are also historically short-lived. Even if the market does rally, it has some ground to make up. The recent weakness in wheat has been driven by a number of factors.
Firstly, Russia and Ukraine have been shipping wheat through the Black Sea at breakneck speed. Russian exports for April tallied 3.8mmt, a record for this time of year. The ‘floor’ they introduced of US$275 Free on Board (FOB) has been breached by some recent sales which has seen FOB values across the globe fall as other origins try to compete. Secondly, Brazil has been exporting corn at very cheap prices, which has undermined the feed complex including ASW wheat and feed barley. Lastly, crude oil has fallen below US$70/barrel in the past week. The underlying signal this sends to the commodity sector is that global economies are struggling and creating a ‘risk off’ mentality.
Next week
It remains a tough market to navigate. The Grain Corridor is even chances of collapsing if the Russians can’t squeeze some concessions out of the UN. Should some middle ground be made, and the Corridor continued, expect recent strength to dissipate quickly.
It’s May and the new season World Agricultural Supply and Demand Estimates (WASDE) from the United States Department of Agriculture (USDA) is out. The WASDE
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In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making.
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The art of diplomacy
Next week
It remains a tough market to navigate. The Grain Corridor is even chances of collapsing if the Russians can’t squeeze some concessions out of the UN. Should some middle ground be made, and the Corridor continued, expect recent strength to dissipate quickly.
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Data sources: Refinitiv, Reuters, USDA, Mecardo
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Jack tours Russia
To start the week, the wheat market got a very nice little push courtesy of Russian frosts, a bullish USDA report and technical short covering.
Benign May WASDE
It’s May and the new season World Agricultural Supply and Demand Estimates (WASDE) from the United States Department of Agriculture (USDA) is out. The WASDE
Weather bingo card
After the relatively quiet last few months where the ag commodity markets have drift-ed lower, the establishment of the weather market has seen a welcome
Getting good prices while avoiding volatility
Grain and oilseed markets are showing some good old-fashioned spring (in the northern hemisphere) volatility. We know that springtime dryness can grow into real production
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
Research: Analysis of the Australian sheep flock
In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making.
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We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.