Pouring of grain from above

The wheat market has continued its recent strength, climbing by around 20¢/bu for the week. The slow, incremental rises are a little perplexing at a time when a large Northern Hemisphere harvest is about 2/3’s complete. While there has been some retraction (EU27 and Argentina), the remaining big exporters’ crops (Russia, Aust, Canada) are building.

Part of the reason why the ag commodities are rallying is because of the interest in owning (bought) positions by the managed money/spec crowd.  The managed money net position for wheat is around 12k contracts long/bought*.  This is unusual for this time of year when again the weight of new crop should be a bearish signal. 

*To understand this, think of wheat/corn/bean futures as shares. You would buy them when you thought they were good value, or thought they were going up.  Similarly, you would sell them when you wanted to either profit take or thought they had peaked.  It is also important to remember that the speculators/managed fund money account for ~96% of trades in CBOT making it the most liquid market we have.

So, what are the managed money crowd taking into account?  It is likely a combination of factors, chiefly, strong demand from China for US commodities, a weakening USD (making US commodities cheaper) and a deteriorating crop in key ag state of Iowa.  The spec crowd also rely heavily on algorithms – a mathematical model of predicting a market movement – and can also change their positions very quickly if the sentiment changes.

Speaking of Iowa, the ProFarmer tour there has confirmed dry conditions – something like 96% of the state is drought declared – yet the estimated yields observed are still average to slightly above.  Harvest should commence in the next 2-4 weeks in beans and corn so the proof will come then.

Russian FOB prices rose by $9/t for the week to be around US$211 on the back of strong consumer demand (Egypt bought 530kmt of Russian wheat in their latest tender) and internal logistics of getting grain to port.  As mentioned earlier, the bulk of this year’s crop is in the central Russian provinces which make the transport of grain to the Black Sea ports slower and more costly. 

Further delays in transport could result in short term price spikes but also increases the amount of wheat competing with Southern Hemisphere crops in the new year.  It is going to make pricing grain very interesting in the months ahead.

Next week…

The wheat market feels top heavy. There is a big crop globally and all we are doing is finessing the final estimate.  Expect some profit taking in the next week.

Have any questions or comments?

We love to hear from you!

Click on graph to expand

Click on graph to expand

Data sources:  USDA, Reuters, ProFarmer, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!
Australian wheat shipping terminal
Grains & Oilseeds

The sharks are circling

It was a bloodbath in the agricultural commodities last night, indeed the whole week. Since last Friday, Dec ’22 wheat has lost 139¢/bu or $62/t

Read More »
Percentiles with a background image of hay bales

Percentiles – June 2022

Mecardo’s Percentiles update for June 2022. Click below to view the latest report Grains Oilseeds Sheep and lambs Cattle Wool Dairy Fuel Percentiles are an important

Read More »
Wheat plants _ image
Grains & Oilseeds

Opportunity awaits the brave

Where is the opportunity in SWAPS?  Any keen market watcher will have noticed the discrepancy between AUD Futures (SWAPS) and the cash price.  The spread

Read More »

Don’t have an account with us? Join free.

You can have full premium access to all of our content with a monthly or annual subscription. 

Alternatively, create a free account to access our Insights blog and two free premium article a month!

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
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.

Photo of a farmer surrounded by Merino sheep in dusty yards
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. 

Image of harvested grain pouring into a chaser bin

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.