Brazil corn field

It is not uncommon at this time of year, that the commodity market starts to focus on (northern hemisphere) weather. We generally see this a couple of times during the year, predominantly between March/May as the winter wheat comes out of dormancy and when the row crops are sown, and again in Aug/Sept during the critical row crop pollination peri-od. This is collectively known as the ‘weather market’.

Given the tightening of stocks across the globe this year, added importance is leveled across the ‘weather market’ and as such we can expect to see additional volatility.  Already, corn prices are up 17% and wheat up 15% since the start of April.

One of the things keeping traders and analysts awake at night is the fate of the Brazilian safrinha (second) corn crop.  Much of Brazil is drier than average and the crop has gone in late. This week, the key production state of Matto Grosso is forecast to receive rain.  However, the second and third most important production areas of Matto Grosso de Sul and Paranã look to remain dry with the onset of the dry season about to commence.  Current estimates predict that 10-20mmt may be wiped from the current production estimate of 107mmt, leaving a huge hole in global corn stocks.

Other weather flags are focused on a dry western Europe (in particular France) and Canadian Prairies.  This is putting quite the risk premium into Canola prices and is exacerbating the already tight outlook for oilseeds.  The latest reality check was news that Canada bought a cargo of Ukrainian canola for prompt delivery, highlighting the fact that once ample stocks are now scarce.

Cold weather has returned to the US with sub-zero temps and snow forecast through much of the Eastern and Central parts of the continent.  This will likely halt much of the corn and bean planting that relies on soil temperature reaching a minimum 10˚C (50F). Corn planting is estimated to be at 8% planted, on par with expectations.  There remains plenty of time to get the crop in and this cold blast is not expected to pose any real threat.

The week ahead….

The market has just got very interesting, very quickly.  Speculative interest is ramping up the fundamental drivers.  Does the buying continue or will the market stall?  My guess is that we’ll see some more upside, but a good rain in the right place, might just initiate a round of profit-taking.

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Data sources: USDA, Reuters, Mecardo

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