The worm seems to have turned somewhat in the grain and oilseed complex. While there is some short-term support coming from yet more geopolitical unrest, some fundamentals are also on the move. With the wheat hedging window theoretically closed, rising prices now are approached with caution.
Figure 1
shows the jump we’ve seen in wheat values in the last week. As outlined in Friday’s Market Comment, the
escalation in the Middle East offered support, and this has been followed by
some fundamental bullish news.
We also
know that speculators are heavily short, and any unwinding of this position
will see wheat rally rapidly, just as we saw last week. SRW gained 13% to sit just under $350/t for
the nearby contract. For the December
contract, SRW is back at $380/t, moving back towards the levels of the last
harvest.
ASX Wheat
futures have followed Chicago SRW higher, but as of Friday, the rally hadn’t
been as strong. Monday morning markets
look like they might be higher, with offers up, but bidders haven’t come to the
party as yet. You would think we could
be looking at $400+ for the January 25 contract.
Canola values
haven’t rallied as much in the last week, with more work done earlier in the
month. Still, figure 2 shows Matif
Rapeseed reaching a six-month high in our terms, moving back above $750/t.
Weather in
key rapeseed and canola production areas is helping values edge higher. No doubt dryness in the US, which is
supporting wheat, is also giving soybeans and the oilseed complex in general a
lift.
Local
canola prices have kept pace with Matif, rallying from a low of $588/t in
February to $660/t last week. Figure 2
shows basis remains steady at negative $100/t, which is relatively weak, but we
might have to see some production concerns before we see it narrow.
What does it mean?
We say the wheat hedging window is closed, as when production issues arise at this time of year, they are harder to turn around and often get worse. The dryness in Russia and the US is a concern, and there is still time for rain to assist production, but it will not boost production, rather save what is already there.
The canola hedging window remains open, with oilseed crops still going in the ground in the northern hemisphere. If Matif breaks $800 there might be some sellers showing more interest.
Key Points
- Weather and geopolitical issues have seen grain and oilseed prices rally.
- The hedging window for wheat is theoretically closed, but canola remains open.
- When wheat production issues arise this time of year, they can often get worse.
Click on figure to expand
Click on figure to expand
Data sources: CME, ASX,MATIF, Mecardo
