I’ve spoken before about the role of speculators and managed money in agricultural markets. Realistically, something like 96% of participants in CBOT—or any other trading venue for that matter—couldn’t tell a wheat plant from a power plant.
One of the key factors that had been capping prices and limiting rallies was the large net short position held in CBOT, particularly in wheat and corn. In simple terms, this was a collective bet from those market participants that prices would remain weak or trend lower.
Think of it like shares or real estate: if you sell something, you ideally want to have bought it at a lower price to make a profit. Futures markets allow you to do this in any order, without ever owning the physical commodity.
Over the past couple of weeks, that positioning has flipped. Net exposure in agricultural commodities has moved from heavily sold to outright bought. In other words, speculators and managed money have shifted their view, driven by rising geopolitical tensions and increasing weather risks.
The underlying bet has changed. Markets are now pricing in higher energy costs feeding into stronger biofuel demand, rising input costs, and more uncertain global trade flows. All of which support higher grain prices in the months ahead.
Weather is also playing a role. US forecasts suggest that over the past 30 days, the HRW region has received just 20–40% of average rainfall, with some areas recording none at all. The seven-day outlook remains dry. Given that HRW accounts for roughly 40% of total US wheat production, this is significant. Crop development ranges from tillering to stem elongation, but conditions are deteriorating quickly, with ratings down 22% in the past month alone.
We can’t finish without mentioning the “F” words — fuel and fertiliser. The conflict in the Middle East is creating a genuine pinch point for global fuel and fertiliser supplies. At the same time, key refining and exporting nations are increasingly focused on securing domestic supply. China has already halted exports of diesel and had already been restricting urea exports prior to the conflict starting, while countries like South Korea, Malaysia, and Singapore—responsible for around 90% of Australia’s distillate imports—remain heavily reliant on Middle Eastern crude and gas.
Next week
Without meaningful rainfall, the US weather story is likely to intensify. When combined with rising input costs and tightening supply, the US wheat balance sheet could shift materially. That’s a setup that has the potential to drive a sharp rally—and it’s increasingly difficult to ignore the warning signs.
US markets have been tracking along almost blissfully unaware of what has been unfolding across the Atlantic. If anything, US wheat futures have been content
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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.
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Markets are now pricing in higher energy costs?
One of the key factors that had been capping prices and limiting rallies was the large net short position held in CBOT, particularly in wheat and corn. In simple terms, this was a collective bet from those market participants that prices would remain weak or trend lower.
Think of it like shares or real estate: if you sell something, you ideally want to have bought it at a lower price to make a profit. Futures markets allow you to do this in any order, without ever owning the physical commodity.
Over the past couple of weeks, that positioning has flipped. Net exposure in agricultural commodities has moved from heavily sold to outright bought. In other words, speculators and managed money have shifted their view, driven by rising geopolitical tensions and increasing weather risks.
The underlying bet has changed. Markets are now pricing in higher energy costs feeding into stronger biofuel demand, rising input costs, and more uncertain global trade flows. All of which support higher grain prices in the months ahead.
Weather is also playing a role. US forecasts suggest that over the past 30 days, the HRW region has received just 20–40% of average rainfall, with some areas recording none at all. The seven-day outlook remains dry. Given that HRW accounts for roughly 40% of total US wheat production, this is significant. Crop development ranges from tillering to stem elongation, but conditions are deteriorating quickly, with ratings down 22% in the past month alone.
We can’t finish without mentioning the “F” words — fuel and fertiliser. The conflict in the Middle East is creating a genuine pinch point for global fuel and fertiliser supplies. At the same time, key refining and exporting nations are increasingly focused on securing domestic supply. China has already halted exports of diesel and had already been restricting urea exports prior to the conflict starting, while countries like South Korea, Malaysia, and Singapore—responsible for around 90% of Australia’s distillate imports—remain heavily reliant on Middle Eastern crude and gas.
Next week
Without meaningful rainfall, the US weather story is likely to intensify. When combined with rising input costs and tightening supply, the US wheat balance sheet could shift materially. That’s a setup that has the potential to drive a sharp rally—and it’s increasingly difficult to ignore the warning signs.
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Click on graph to expand
Click on graph to expand
Click on graph to expand
Data sources: Reuters, USDA, Next Level Grain Marketing, Bloomberg, Mecardo
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
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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.
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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.
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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.