I’ll admit to being a bit surprised to see the wheat market continue to rally over the past week. The return to work after the Chinese Lunar New Year and little in the way of fundamental issues to drive the market, I presumed it would be a quiet week. However, money doesn’t sleep and the money managers decided it was time to cover some of their shorts (sold positions) in the wheat pit.
The catalyst seems to be two-fold. Firstly, US weather concerns highlighted by fires in the southern Panhandles of Oklahoma and Texas, reveal just how dry it is despite it still being officially Winter. In the Texas panhandle, one fire burned over 280k acres but is now contained. Rain appears in the forecast which should bring some relief to farmers ahead of seeding.
The other technical driver pushing the trade to quit their sold positions is the fact that US storage fees have been cut reducing the profitability of holding grain. The VSR (variable storage rate) was reduced last week in CBOT as the market recognised that the calendar spread between months was less than 50% of the full carry cost. This implies that (in the US) there is less pressure on the storage system relative to the amount of stock. It is this signal that suggests stocks to use are tightening and possibly signifying a price shift higher.
These technical rallies can be relatively short lived, however, if the US market – independent of other global origins – finds their stocks are getting tighter, prices may have to lift higher to rationalise demand.
We couldn’t let this week’s commentary go past without mentioning Trump’s tariff’s being ruled illegal by the US Supreme Court. This could be seen as a major roadblock towards the US’s ability to generate revenue – even if it is at the expense of the US citizen. The market initially rallied as it should have meant lower trade barriers and cheaper imports and business costs. But the decision to then impose a temporary 15% blanket tariff on all countries re-establishes instability in global markets and renewed concerns over the US economic stability.
Globally, the wheat market remains well supplied without too many red flags for the coming season. NDVI data reveals that EU27 crops are in decent shape, although France recently reduced the portion of crops rated good to excellent from 91% to 88%. Russia has seen some particularly good snow fall, which while good for winter crops, may cause some headaches for spring sowing. Ukraine wheat production may see some revisions lower as wide-ranging seasonal conditions lead analysts to suspect below average yields.
Next time you ever feel the need to moan about our storage and handling system during harvest, spare a thought for the farmers and truckies in Brazil. Soybean harvest has started in the key state of Mato Grosso. Much of Brazil’s harvest is carted to river ports and in this case, the trek from Mato Grosso to the port of Miritituba in a neighbouring state, is approximately 1000kms.
As of last Friday, the line up of trucks waiting to unload at the port was over 39kms long…
Next week
As we shift inexorably into the ‘weather market’ we can expect more commentary about threats to production. Whether there is any validity to these stories or is just outside ‘noise’ to generate a headline, remains to be seen.
The surge in the energy sector has also spilled over into alternative fuels, primarily corn ethanol and biodiesel. If the conflict drags on, pressure will
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.
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.
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.
Short covering heralds a shift
The catalyst seems to be two-fold. Firstly, US weather concerns highlighted by fires in the southern Panhandles of Oklahoma and Texas, reveal just how dry it is despite it still being officially Winter. In the Texas panhandle, one fire burned over 280k acres but is now contained. Rain appears in the forecast which should bring some relief to farmers ahead of seeding.
The other technical driver pushing the trade to quit their sold positions is the fact that US storage fees have been cut reducing the profitability of holding grain. The VSR (variable storage rate) was reduced last week in CBOT as the market recognised that the calendar spread between months was less than 50% of the full carry cost. This implies that (in the US) there is less pressure on the storage system relative to the amount of stock. It is this signal that suggests stocks to use are tightening and possibly signifying a price shift higher.
These technical rallies can be relatively short lived, however, if the US market – independent of other global origins – finds their stocks are getting tighter, prices may have to lift higher to rationalise demand.
We couldn’t let this week’s commentary go past without mentioning Trump’s tariff’s being ruled illegal by the US Supreme Court. This could be seen as a major roadblock towards the US’s ability to generate revenue – even if it is at the expense of the US citizen. The market initially rallied as it should have meant lower trade barriers and cheaper imports and business costs. But the decision to then impose a temporary 15% blanket tariff on all countries re-establishes instability in global markets and renewed concerns over the US economic stability.
Globally, the wheat market remains well supplied without too many red flags for the coming season. NDVI data reveals that EU27 crops are in decent shape, although France recently reduced the portion of crops rated good to excellent from 91% to 88%. Russia has seen some particularly good snow fall, which while good for winter crops, may cause some headaches for spring sowing. Ukraine wheat production may see some revisions lower as wide-ranging seasonal conditions lead analysts to suspect below average yields.
Next time you ever feel the need to moan about our storage and handling system during harvest, spare a thought for the farmers and truckies in Brazil. Soybean harvest has started in the key state of Mato Grosso. Much of Brazil’s harvest is carted to river ports and in this case, the trek from Mato Grosso to the port of Miritituba in a neighbouring state, is approximately 1000kms.
As of last Friday, the line up of trucks waiting to unload at the port was over 39kms long…
Next week
As we shift inexorably into the ‘weather market’ we can expect more commentary about threats to production. Whether there is any validity to these stories or is just outside ‘noise’ to generate a headline, remains to be seen.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: Reuters, SovEcon, Zaner Ag, Next Level Grain Marketing, Mecardo
Categories
Have any questions or comments?
Energy sector surge and weather market continues
The surge in the energy sector has also spilled over into alternative fuels, primarily corn ethanol and biodiesel. If the conflict drags on, pressure will
Soft finish delivers larger than expected crop
There is so much going on in Ag markets at the moment, anything that is written on a Monday is potentially out of date by
Conflicting impacts on profitability
It feels like déjà vu writing about another conflict starting and the potential impacts on agricultural inputs and outputs. This time it’s Iran, not a
Short covering heralds a shift
I’ll admit to being a bit surprised to see the wheat market continue to rally over the past week. The return to work after the
Want market insights delivered straight to your inbox?
Sign up to the mailing list to get regular updates to new analysis and market outlooks
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.
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.