Close up image of green wheat head

This week it has been all about soybeans. The oilseed (or meal source, depending on your point of view) has boomed on tight supplies and South American production concerns. Wheat, on the flip side, has come a full circle since hitting its highs in late January to be down nearly 30c/bu for the week. To be sure the Black Sea Tensions have not gone away, but a diplomatic war seems to be the outcome with the shortest odds.

But back to soybeans. South American weather continues to be a thorn in the side of commodity bears.  More and more private analysts in Brazil are now suggesting the soybean crop is sub 130mmt, compared to previous estimates of around 145mmt.    Brazils state-based agricultural commodity analyst CONAB, still has production estimates at 142mmt.   Soybean harvest is gathering pace – now 32% complete, compared to 13% last week and 21% on average.  A timely harvest means the safrinhá (second) corn crop will be sown in the optimum window.  Forecast rain will also assist with timely planting and emergence. 

Potentially assisting the wider oilseed market, is news that Indonesia will restrict palm oil exports as a means to curb soaring cooking oil prices.  Together with Malaysia, Indonesia provides 85% of the world’s supply of palm oil, which also accounts for 55% of global vegetable oil exports.  Industrial use is also rising with 10mmt of palm oil supplies to be used in biodiesel production.  The Indonesia Government has also recently mandated a 30% renewable blend for domestic biodiesel production as a means of injecting a downstream value-adding mechanism.

As a result of these changes, the market value of the Malaysian Palm Oil contract hit record highs.  It is widely expected that end users will have to look for alternative oil sources (canola, sunflower and/or soybean) to account for surging prices.  Crude oil has also a strong correlation on the price of the oilseed market.  Crude pierced US$90/barrel last night for the first time in 8 years and as a direct replacement, the wider oilseed market is following suit.

Changing topic, weekly export sales of US wheat were down 92% on the week.  It is possibly a function of late reporting, in so much that consumers may have retreated from the market as prices hit a peak in late January.  Black Sea prices had also fallen in sympathy to deteriorating demand but also logistic issues at port due to poor weather.  However, a few large international tenders were awarded to Black Sea origins this week.  The market has seen this as evidence of cooling tensions and uninterrupted trade flow from the region.

The week ahead….

The wheat market is following the path of least resistance lower in the absence of any bullish story.  There is still plenty of weather (or conflict) to trade in the coming weeks and months, but at this point, without a problem emerging, wheat looks like it is the weakest of the three main ag commodities.

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Data sources: USDA, Reuters, GPA

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