Agricultural markets have been on the wrong end of a sell-off for the past couple of weeks. That slide was halted overnight as the major ag commodities rallied on improving demand signals and the extreme heat currently gripping western Europe. Parts of France and Germany recorded some of their hottest June days on record, while southern France has regularly experienced temperatures above 42°C.
With the wheat harvest only just beginning, the heat and dryness are unlikely to have a major impact on wheat yields, although the European Commission did trim its production estimate from 126.9 million tonnes to 126.3 million tonnes. The greater concern lies with the spring-sown crops — barley, corn and sunflowers. Corn remains a fundamental component of global feed rations, and any reduction in yield will ultimately be felt by consumers and can create spillover support for alternative feed grains, including wheat and barley.
Harvest in southern Russia is also getting underway, with early barley results indicating yields are up around 20% year-on-year. This has raised expectations for improved wheat yields as well. It is important to remember, however, that southern Russia endured numerous production issues last season, meaning current results may simply represent a return to more normal conditions. Notably, SovEcon reduced its Russian wheat production estimate from 90 million tonnes to 88 million tonnes, primarily due to a revision in planted area from 26.9 million hectares to 25.8 million hectares.
Closer to home, the Australian winter crop is arguably getting bigger. Good May and June rains have the crop looking fantastic, with SA and VIC NDVI graphs off the charts. Forecast rains this week look to focus on WA and NSW and should see the crops well set up for the run into Spring.
On a less positive note, the detection of the H5N1 bird flu strain in both Western Australia and South Australia has been confirmed. State governments have moved quickly, favouring vaccination programs in an effort to contain the outbreak. It remains an understandably nervous time for poultry producers.
While the conflict in Iran is officially considered “over”, the region remains tense. Ships have resumed transiting the Strait of Hormuz this week, bringing a degree of relief to commodity markets. However, early this morning a tanker reported coming under fire per Reuters. Iran has warned vessels against moving outside designated shipping lanes, so the incident may prove to be little more than a heavy-handed warning shot. Either way, it indicates that peace remains delicate in the region and markets could potentially react nervously as a result.
Next week
The European heatwave is forcing the market to reassess its outlook. The US crop remains in relatively comfortable condition, although US markets are reluctantly beginning to follow the strength emerging in Europe. Corn may yet prove to be the wildcard for wheat prices. Should European corn production continue to deteriorate, feed demand could provide the catalyst for renewed strength across the wheat complex.
The United States Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates (WASDE) Report was released on Friday, showing a tightening trend across wheat
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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 sweat on EU heat
With the wheat harvest only just beginning, the heat and dryness are unlikely to have a major impact on wheat yields, although the European Commission did trim its production estimate from 126.9 million tonnes to 126.3 million tonnes. The greater concern lies with the spring-sown crops — barley, corn and sunflowers. Corn remains a fundamental component of global feed rations, and any reduction in yield will ultimately be felt by consumers and can create spillover support for alternative feed grains, including wheat and barley.
Harvest in southern Russia is also getting underway, with early barley results indicating yields are up around 20% year-on-year. This has raised expectations for improved wheat yields as well. It is important to remember, however, that southern Russia endured numerous production issues last season, meaning current results may simply represent a return to more normal conditions. Notably, SovEcon reduced its Russian wheat production estimate from 90 million tonnes to 88 million tonnes, primarily due to a revision in planted area from 26.9 million hectares to 25.8 million hectares.
Closer to home, the Australian winter crop is arguably getting bigger. Good May and June rains have the crop looking fantastic, with SA and VIC NDVI graphs off the charts. Forecast rains this week look to focus on WA and NSW and should see the crops well set up for the run into Spring.
On a less positive note, the detection of the H5N1 bird flu strain in both Western Australia and South Australia has been confirmed. State governments have moved quickly, favouring vaccination programs in an effort to contain the outbreak. It remains an understandably nervous time for poultry producers.
While the conflict in Iran is officially considered “over”, the region remains tense. Ships have resumed transiting the Strait of Hormuz this week, bringing a degree of relief to commodity markets. However, early this morning a tanker reported coming under fire per Reuters. Iran has warned vessels against moving outside designated shipping lanes, so the incident may prove to be little more than a heavy-handed warning shot. Either way, it indicates that peace remains delicate in the region and markets could potentially react nervously as a result.
Next week
The European heatwave is forcing the market to reassess its outlook. The US crop remains in relatively comfortable condition, although US markets are reluctantly beginning to follow the strength emerging in Europe. Corn may yet prove to be the wildcard for wheat prices. Should European corn production continue to deteriorate, feed demand could provide the catalyst for renewed strength across the wheat complex.
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Data sources: Next Level Grain Marketing, Bloomberg, USDA, Reuters, Sov Econ, Mecardo
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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.
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.
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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.