Golden grain harvest

Grain markets started to get a bit choppy this week as forecast rains materialised in key production origins in the US, Russia and Brazil. A ‘winter’ storm has lashed parts of the key US HRW areas of Kansas and Oklahoma dropping between 5-6” of wet snow on previously very dry soils. This is expected to help the winter wheats establish and get hardened before the onset of winter. The first crop rating for US winter has the crop at 41% gd-exc compared with the average of 53% gd-exc.

Similarly, the southern Russian areas around the Black Sea got some useful rains last weekend, temporarily providing some relief.  Temperatures remain relatively mild which will allow the crops to continue vegetative growth and aid in their establishment. A further round of rain is forecast this weekend.

On the flip side, Argentina’s grain exchange (BAGE) cut their expectations of the 20/21 crop to 16.8mmt (from 17.5mmt) on the back of observed frost damage and drought.  The South American rains appeared to have favoured Brazil over Argentina which will be of benefit to the soybean crop there.  Planting pace has risen from 6% last week to 23% this week. This is having a flow-on effect to canola with prices easing over the past couple of days.

Also adding support to commodity markets in general is the on-going demand from China.  The country is truly an enigma.  Corn and soybean demand is through the roof with China likely to announce an increase in its low tariff corn quota.  Black Sea corn harvest has been revised backwards, which throws more demand to the US, further supporting price.  We know that corn prices have a pretty direct correlation to wheat prices, so coupled with on-going demand for wheat, it is no great surprise we are seeing a sharp increase in global prices.  France has emerged as a major supplier of wheat into China and Canada’s barley export program is running at 3 times the average pace (source C Penner @LeftFieldCR).

Lastly, the spectre of COVID is rising again.  The list of new infections in Europe is quickly getting out of hand.  France recorded over 120k this week.  Similarly, the US infection rate is picking up as well, with 140k new cases in two days.  We saw in May/June of this year what lockdowns and food security needs did to the market.  Crude oil is down on concerns of further lockdowns and the AUD is hovering just on 0.70USc.  As the northern hemisphere heads into winter, it feels like mandatory lockdowns are a ‘fait accompli’ and with it, more market volatility.

Next week

As the long positions in the Ag commodity markets are gradually unwound, expect the market to creep back day by day.  More purchases from China or a return to dry conditions will be required to turn the market around.

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Click on graph to expand

Click on graph to expand

Data sources: USDA, SovEcon, Left Field CR, Mecardo.

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