Funds taking the fun out of commodities

Fundamentally, grain markets look to be supported by shrinking global stocks and geopolitics.  However, the macroeconomic influence of recession cannot be under estimated.  High inflation, coupled with energy shocks in Europe has that bloc teetering on the edge of financial calamity.  US data also suggests that the economy is slowing as per lower gasoline consumption and falling ethanol demand.  Crude oil, as a good barometer for an economies health, is also seen to be under pressure despite OPEC rumblings about capping production.

Weighing on wheat was the lift in the USD which is making cheap Russian wheat look all the more attractive to buyers.  Export demand is finally picking up on the back of a weaker ruble and lower export tax.  Both Algeria and Egypt are believed to have bought up in the past week at prices US$15-20/t below the previous tender. 

Russia needs to up the export pace if they want to get near their 42mmt export forecast.  August saw only 3mmt of business done which is down 36% year on year. 

China is again showing up on the markets radar.  Record breaking heat coupled with a drought is throwing some doubt over that nations corn crop.  While the major growing areas in the north were relatively unaffected, the south is where the population and livestock industry is most dense. Crops in the southern regions are likely affected and end users might have to import rather than rely on domestic supply which is priced much higher than global values. (figure 4)