Earlier this week, shivers went through the stock market on news of a debt crisis enveloping Chinese property developer, Evergrande. The company is said to be in a ‘death spiral’ owing investors and lenders $600B. The flow on effect to banks and investment firms could be profound, with Hong Kong in particular, heavily leveraged against the company.

Australia is also likely already feeling the effects of the property developer problems, with a dramatic reduction in overall demand for steel.  Iron ore prices have collapsed in the past couple of weeks in perhaps a precursor to the Evergrande fall out.  Somewhat ironically, this has happened on the anniversary of the Lehmann Bros collapse in 2008, sparking the Global Financial Crisis.  It’s probably just as well the Chinese banks were closed Mon/Tues.

Whatever the fallout will be, there is a fair chance the market (broader macro market) will adopt a ‘risk off’ attitude.  This may see bonds, stocks and commodities all lose some shine as this unfolds.  It might also see currencies take a hit as investors turn to safe assets like the USD.

More recently, the embattled developer has assured investors that they will make interest payments this week and will endeavour to make sure projects are finished.  The statement seems to have hit the right note with iron ore up 2% overnight.

Fundamentally, the wheat market has managed to tread water this week.  Nothing more, nothing less.  It feels like we will trade in a relatively tight range over the coming weeks, if anything a little lower as US corn and bean harvest picks up pace.  Predicted fine weather in the US should see harvest make good progress.

US beans are probably most in the spotlight.  Exports out of the Gulf of Mexico are down 80% as companies struggle with logistics due to damage caused by Hurricane Ida a couple of weeks ago.  China has reportedly switched origins and bought 360kmt of beans out of Brazil.  News of this has weighed heavily on bean prices which has, in turn, weighed on the broader oilseed market.

The week ahead….

Reports coming out of the US suggest the EPA, via the Biden Administration, are considering reducing the biofuel mandate.  This is likely in response to extremely tight supplies and high prices.  While in the short term it is a win for the oil companies, it will be almost certainly be a loss for farmers everywhere. 

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Data sources: USDA, Reuters

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