The only real development of note was an attempt to bring Russian and Ukrainian negotiators back to the table. A US-led delegation of special envoys travelled to Kyiv and Moscow in an effort to negotiate some form of peace deal.
The most significant detail for the wheat market, however, was the timing. The meetings took place on the eve of the US long weekend, leaving money managers with a fairly simple decision to make. Speculators did not want to be carrying large bought positions into a weekend where a historic breakthrough could potentially be announced. The result was a rush for the exit and another round of profit taking.
Unsurprisingly, no deal was reached and the wheat market is once again attempting to grind higher.
One of the bigger challenges for the bulls remains the lack of meaningful demand. Saudi Arabia passed on a tender for 500,000 tonnes of wheat this week, citing high prices. Tunisia has a tender for 700,000 tonnes pending, so it will be interesting to see how its trading team views the current market.
Speaking of speculators, the Commitment of Traders data shows that net positioning across agricultural markets has recently — and arguably quite suddenly — moved to a record long position. In simple terms, this represents a significant bet by fund managers that agricultural markets are going higher.
The positioning is now larger than it was around the time Russia Ukraine conflict began in 2022. Importantly, a large proportion of these long positions are held in the European MATIF market, suggesting that funds see the combination of the European drought and ongoing Black Sea disruption as longer-term issues for the region.
There is certainly some fundamental evidence to support that view.
SovEcon reported that, by the end of August, Russian farmers had planted just 0.8 million hectares of winter wheat — 41% behind the five-year average. A combination of a dry August, poor and falling prices, increased demand for on-farm storage and sluggish demand is starting to weigh on planting decisions.
It may be that we are only just beginning to see the emergence of a genuine year-on-year reduction in Russian wheat production potential. If that trend continues, it could become a much more important story for the market.
There is also plenty of chatter around the Canadian crop. Harvest is about to move into top gear, but recent heavy rainfall across the Prairies has raised concerns about quality. My understanding is that Canadian red wheats are generally less susceptible to sprouting and weather damage than our white wheats, but everything has a limit. As always, harvest will eventually provide the answers.
Long, nervous and waiting
The only real development of note was an attempt to bring Russian and Ukrainian negotiators back to the table. A US-led delegation of special envoys travelled to Kyiv and Moscow in an effort to negotiate some form of peace deal.
The most significant detail for the wheat market, however, was the timing. The meetings took place on the eve of the US long weekend, leaving money managers with a fairly simple decision to make. Speculators did not want to be carrying large bought positions into a weekend where a historic breakthrough could potentially be announced. The result was a rush for the exit and another round of profit taking.
Unsurprisingly, no deal was reached and the wheat market is once again attempting to grind higher.
One of the bigger challenges for the bulls remains the lack of meaningful demand. Saudi Arabia passed on a tender for 500,000 tonnes of wheat this week, citing high prices. Tunisia has a tender for 700,000 tonnes pending, so it will be interesting to see how its trading team views the current market.
Speaking of speculators, the Commitment of Traders data shows that net positioning across agricultural markets has recently — and arguably quite suddenly — moved to a record long position. In simple terms, this represents a significant bet by fund managers that agricultural markets are going higher.
The positioning is now larger than it was around the time Russia Ukraine conflict began in 2022. Importantly, a large proportion of these long positions are held in the European MATIF market, suggesting that funds see the combination of the European drought and ongoing Black Sea disruption as longer-term issues for the region.
There is certainly some fundamental evidence to support that view.
SovEcon reported that, by the end of August, Russian farmers had planted just 0.8 million hectares of winter wheat — 41% behind the five-year average. A combination of a dry August, poor and falling prices, increased demand for on-farm storage and sluggish demand is starting to weigh on planting decisions.
It may be that we are only just beginning to see the emergence of a genuine year-on-year reduction in Russian wheat production potential. If that trend continues, it could become a much more important story for the market.
There is also plenty of chatter around the Canadian crop. Harvest is about to move into top gear, but recent heavy rainfall across the Prairies has raised concerns about quality. My understanding is that Canadian red wheats are generally less susceptible to sprouting and weather damage than our white wheats, but everything has a limit. As always, harvest will eventually provide the answers.
Next week
Russia and Ukraine continue to target each other’s export and energy infrastructure, and with winter approaching, it appears increasingly unlikely that either side has any intention of backing down.
Crude oil prices are also surging as fresh conflict around the Strait of Hormuz and Red Sea add another layer of risk to already tight oil and distillate markets.
The cracks are starting to widen. The question for wheat is whether the market can turn those cracks into something more substantial than another short-lived rally.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Click on graph to expand
Data sources: Next Level Grain Marketing, Reuters, SovEcon, Bloomberg, Mecardo
Categories
Have any questions or comments?
No joy for growers in the WASDE
It’s somewhat of a paradox for grain producers, that in order for prices to rise in the short term, production downgrades would need to be
Back to the Brink in the Black Sea
After a couple of weeks of the wheat market falling – largely on the back of a proposed grain corridor MkII – the same old
Fuel costs hitting at both ends
Grain markets continue to struggle for direction, and with rain securing some strong yields across the south of the country – it’s time to look
Canola remains the shining light
Canola prices remain the shining light for croppers, with prices having moved back to peaks seen earlier in the year. As usual, local markets are
Want market insights delivered straight to your inbox?
Sign up to the mailing list to get regular updates to new analysis and market outlooks
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.
MEET THE TEAM
Our team of market analysts are recognised as leaders in Australian Ag market analysis, providing invaluable insights to help you navigate the ever-changing commodity landscape.
SERVICES AND CAPABILITIES STATEMENT BROCHURE
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.