Looking into the distance over wheat field

What. A. Week! The past seven days have had a little bit of everything. Wheat saw a classic ‘short covering rally’ which resulted in a steep rally in most agricultural commodities based on the drought-like conditions in the US. Then over the weekend, one of two major price drivers happened.

Firstly, the US weather turned wetter.  As mentioned in last week’s grains article (read here), for the rally to be sustained, the market would need further evidence of US corn/beans production cuts.  The rains which fell (and are forecast to continue falling) have snuffed out the bullish charge, for now.  These rains will help stabilise the corn crop and may even build production should they continue through July.  Current corn crop ratings are abysmal at only 50% good to excellent, but the forecast of further rain has overshadowed these numbers.

Last night, wheat closed at 653c/bushel (Dec ’23) having closed last Friday at 739c/bushel.  Essentially the market has clawed back everything that it gained as dry conditions took hold. There is building sentiment that the moves over the past 6 trading sessions are overreaching and we are now in over-sold territory.  With the USDA’s stocks report due out tonight, the trade will happily sit on the sidelines with a defensive mindset.

The second major news item that occurred over the weekend was the news of a potential coup from within the Russian paramilitary forces, the PMC Wagner group. They got within 200km of St Petersburg when they stopped and turned around.  Why? It is assumed Wagner got some of the compromise, but either way, it has weakened Putin’s power and created a lot of uncertainty with the conflict. Had the (attempted) coup occurred while markets were open, it would have been extremely volatile.  The fact it was resolved while the markets were closed, meant the markets could turn their attention back to the weather.  As a result, the wheat market has dropped the best part of 86c/bushels (Dec ’23) from its recent high.

Next week

One rain event does not a corn crop make.   Forecasts will chop and change and with it, the market will react to any threats to production.  The USDA stocks report will be closely watched for any surprises.  Most analysts expect all commodities to be slightly lower than this time last year. Higher stocks from these estimates will be bearish. 

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Data sources: Reuters, Next Level Grain Marketing, Mecardo

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