Seasonal volatility will keep us guessing

It has been an interesting week in the ag commodity markets. While it can be frustrating, it is also intriguing watching the machinations between the fundamentals (production, supply, demand) and the technicals (fund managers, speculators, algorithm traders).

It started with a big uptick in Chinese purchases from the US.  It seemed to catch the market off guard as the subsequent rally was quite sharp. I don’t know why it caught the market by surprise – it’s all part of the Phase 1 Trade Deal.  Surprising perhaps because China has appeared to have been going out of its way to buy goods from just about every other origin other than the US. 

Then came the production cuts.  Revisions to Russian and European crops and concerns over the Argentinian crop (La Nina?) saw the global balance sheet tighten up slightly.

Lastly, and this was the big price mover, there was a significant repositioning of the trade.  The Commitment of Traders (COT) showed the funds bought back poorly positioned SOLD contracts from 33k SOLD to now be holding only 8k SOLD contracts.  It is a big move, and it shows potentially that the technical trader is not as convinced of a bear market as they were only two weeks ago.

Typically, the short covering rally has not been long lived.  Without follow up buying or further production cuts, the rally stalled as demand dried up.   This is the frustrating part that the rally pushed up prices to a point where demand evaporated, so down comes the price until we find where the buyers are.  Each time this happens however, there is a chance that the ‘floor’ rises a little.  In this instance we have seen that both Russian and Ukrainian FOB values have increased on the back of slow farmer selling and we know that sales out of the Black Sea area tend to set the price.

Next week

Looking ahead, the market will remain focused on weather.  The spring wheat crop in Russia, corn in the US and the condition of the Southern Hemisphere crop will all have a say on price direction over the coming weeks and months

Have any questions or comments?

We love to hear from you!

Click on FIgure to expand

Click on graph to expand

Data sources: USDA, Reuters, Next Level Grain Marketing, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services
Wheat field with blue sky
Grains & Oilseeds

Wheat takes a breather

The wheat market has stalled a little in the past couple of days. The bullish reaction to the Russian export tax story has dulled a

Read More »
Grains & Oilseeds

From Russia with love

The wheat market is in chaos and it is due to political interference more than any fundamental issue. We know that wheat is riding the

Read More »
Grains & Oilseeds

Wheat and Canola holiday boost

The main driver of increasing international wheat prices over the traditionally slow holiday period appears to be the falling US dollar. There has been a

Read More »

Don’t have an account with us? Join free.

You can have full premium access to all of our content with a monthly or annual subscription. 

Alternatively, create a free account to access our Insights blog and two free premium article a month!

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
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.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin
SERVICES AND CAPABILITIES STATEMENT BROCHURE

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.