Ever wondered what keeps grain analysts awake at night? Irrational markets. We have seen at least two examples this week, where the market reacted to news in completely the opposite way you would expect.
Last night, the US reported weekly sales of roughly 1Mmt of wheat, including sales to China and South Korea. This is a big volume in anyone’s language, especially when the trade were expecting sales in the range of 200-500kmt. It is good news for a commodity that has seen slow demand at a time when there are concerns around a hunger crisis. Yet the market closed lower 15c/bu.
The second example I’d use is the US weather. The forecasts for the next 15 days calls for hot and dry conditions as corn enters the critical pollination stage. The key areas of Nebraska, Iowa and Illinois (circled) look to remain dry with above average temperatures. Market analysts call this the Dome of Death, representing a meteorologically stable high pressure system. Corn is super important to the wider ag commodity markets as it is the cheapest feed source, but also vital in renewable energy mandates. With tightening global stocks, the US weather is poorly timed with a heatwave in Europe as well as supply issues in Ukraine fuelling fears of demand rationing. Historically, this should be enough to spur a market rally. Yet the market continues to come under pressure.
It appears to be a case of macro-economic concerns dwarfing the fundamental drivers of the ag markets. In the case of wheat, the open interest – a measure of the volume of active trades at any one time – is at very low numbers. The lack of liquidity in the market is distorting ‘normal’ market movement and allowing outside factors – in this case the negative macro-economic sentiment – to drive the bus.
It has becomes difficult to trust a market that appears to be shrugging off some solidly bullish influences. The cash market and the futures market appear to have come to an amicable settlement and gone their own ways. Cash appears to be holding up resolutely in the face of a falling futures market and gives some hope that the fundamentals will prevail.
The week ahead….
It remains a very unsettled market. Grain fundamentals remain supportive and the recent emergence of buyers would suggest that the market is working hard to find a floor.
Faba beans have become a popular break crop in southern states, delivering not only a valuable export or feed commodity, but also giving nutritional benefits
Last week, I finished off the weekly market comment by saying “ Unless the USDA surprises with a sharper-than-expected reduction in corn area, I suspect
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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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Dome of Death
Last night, the US reported weekly sales of roughly 1Mmt of wheat, including sales to China and South Korea. This is a big volume in anyone’s language, especially when the trade were expecting sales in the range of 200-500kmt. It is good news for a commodity that has seen slow demand at a time when there are concerns around a hunger crisis. Yet the market closed lower 15c/bu.
The second example I’d use is the US weather. The forecasts for the next 15 days calls for hot and dry conditions as corn enters the critical pollination stage. The key areas of Nebraska, Iowa and Illinois (circled) look to remain dry with above average temperatures. Market analysts call this the Dome of Death, representing a meteorologically stable high pressure system. Corn is super important to the wider ag commodity markets as it is the cheapest feed source, but also vital in renewable energy mandates. With tightening global stocks, the US weather is poorly timed with a heatwave in Europe as well as supply issues in Ukraine fuelling fears of demand rationing. Historically, this should be enough to spur a market rally. Yet the market continues to come under pressure.
It appears to be a case of macro-economic concerns dwarfing the fundamental drivers of the ag markets. In the case of wheat, the open interest – a measure of the volume of active trades at any one time – is at very low numbers. The lack of liquidity in the market is distorting ‘normal’ market movement and allowing outside factors – in this case the negative macro-economic sentiment – to drive the bus.
It has becomes difficult to trust a market that appears to be shrugging off some solidly bullish influences. The cash market and the futures market appear to have come to an amicable settlement and gone their own ways. Cash appears to be holding up resolutely in the face of a falling futures market and gives some hope that the fundamentals will prevail.
The week ahead….
It remains a very unsettled market. Grain fundamentals remain supportive and the recent emergence of buyers would suggest that the market is working hard to find a floor.
Have any questions or comments?
*World Ag weather
Data sources: Reuters, Dartboard Commodities, Mecardo, World Ag Weather.
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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.