The ag commodity complex has gone through a remarkable correction. The value of most commodities in that basket are now at, or lower than, pre-war values when we saw a huge pile on of technical positions.

The correction has been triggered by the event of new crop supply, but this on its own hasn’t been enough to drive the market lower.  The market has also been at the mercy of falling macroeconomic signals, recessionary fears, a resurgent COVID infection rate and an array of other less tangible factors, all combining at the same time to create a very negative market environment.

But nothing falls forever.  The wheat market appears to have shaken off the speculative long positions that were bought in the post-invasion period, as all the spec traders bolted for the door.  The market had nothing but clear air under it, no one was willing to start buying futures, thereby slowing the fall.  Not even news of Russia shelling foreign owned grain storage facilities in Ukraine a couple of weeks ago could stop the rot.  Over the past week, we have however, seen the big end-users start to come to the market.  Egypt is believed to have bought 1.3Mmt through several state owned (GASC) and private purchases.  The US is also seeing some interest for July/Aug/Sept sales.  French exports are getting busy and seem to be recovering some of the lost North African business.

Russia remains an active seller of wheat having participated in a couple of these recent tenders.  Yet they are not dominating.  The issue is around the nature of the floating export tax.  It only allows the buyer or trader to sell on the ‘spot’ market, or the ‘today’ market.  The trade don’t know what the tax will be in August, or September or anytime in the future, only what it is today.  This is adding unnecessary risk into dealing with Russian traders and will likely dent their aspirations for exporting 40Mmt this marketing year.

So maybe now the market will start to trade on its own again, tracking weather, corn and bean crop potential, demand etc. etc., you know, the fundamentals.

StatsCanada reported the Canadian farmer planted more wheat at the expense of canola, barley and peas.  By all accounts, the season has become much more favourable with the arrival of summer rains.  The reduction in canola area should be a positive for price, while the 10% increase in spring wheat area initially weighed on the futures market.

The US weather through the corn belt has been erratic to say the least.  My twitter feed is full of photos of corn fields smashed by hail storms and wind damage, but the rainfall that accompanied these storms will be of greater benefit.  The key pollination period will be through August and will be critical for price direction going forward.  The USDA has trend line yield potential at 177b/ac and anything below this will be price supportive.

The week ahead….

I’m not sure we’re brave enough to call the ‘bottom’ of the market yet.  The commodity market is still grappling with negative macroeconomic data, a volatile oil market, rising interest rates and political instability.  Generally speaking, ag commodities are relatively immune to some of these outside influences, so we watch and wait.

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Data sources: Reuters, StatsCan, Mecardo

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