It’s amazing how quickly sentiment can turn around. With last weeks’ signing of the Black Sea grain initiative (grain corridor) for another 120 days, the wheat market feels like it has turned a corner.
Market analysts are increasing their forecasts of Russian export volumes, and buyers are turning back to Ukrainian origins now the grain corridor has some more certainty. In addition, the US is so far away from export prices as to be completely uncompetitive. Southern Hemisphere production is firming up and despite a drought ravaged Argentinian crop, and quality concerns around the Australian crop, there does not appear to be too many concerns around supply.
If you are looking for further consensus on the tone of the market, speculative trades increased their short (sold) positions in wheat and corn to now sit at the largest short position since the start of the war. As a reminder, a short/sold position is effectively a wager that the market will weaken from this point (meaning that the owner of the position will make money if the market falls).
Of course there remain risks – mainly around economic conditions and geopolitics in the Black Sea. However, the Northern Hemisphere winter crop (with the exception of the US) is in good condition after some pretty good rains as it heads into dormancy. Modern history would tell you that launching a military offensive in a European winter does not end well, so it is reasonable to think that hostilities will quieten a little over the winter period.
While harvest in Australia is in its infancy, good yields and quality out of Queensland and South Australia has given the trade some reassurance that there will be some decent milling grades among what will be another huge harvest. Western Australian quality is mixed, with lower than average protein, being compensated by big yields. Harvest is more progressed in the Geraldton port zone where roughly 40% of the crop received to date is achieving 10% protein. Harvest is yet to resume in areas recently hit by rain and storms so it will be interesting to watch if quality holds up.
So what is going to make the wheat market rally? In the short term, Geopolitics – and I’m not sure how you trade that. The current 120 day agreement puts the corridor renewal back out to mid March. It is possible we see some uncertainty and risk built back into the market as we approach this deadline. European wheat stocks have been flying out the door, with France expected to have shipped approximately 75% of its surplus by the end of December. If the US starts to pick up non traditional demand, it might push the needle up a tick, however I feel this is the least likely outcome as Black Sea and Australian stocks should be adequate for any demand profile over the next six months.
Next week
We can expect the wheat market to trade in a fairly narrow range from now until we move into the Northern Hemisphere spring. That’s the point where we can expect that the market will be prime to start jumping at shadows again.
The wheat complex has experienced a rather choppy few days, with systematic profit-taking shifting some of the heat out of the supply-squeeze-driven buoyancy we are
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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.
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Someone forgot to feed the Bulls
Market analysts are increasing their forecasts of Russian export volumes, and buyers are turning back to Ukrainian origins now the grain corridor has some more certainty. In addition, the US is so far away from export prices as to be completely uncompetitive. Southern Hemisphere production is firming up and despite a drought ravaged Argentinian crop, and quality concerns around the Australian crop, there does not appear to be too many concerns around supply.
If you are looking for further consensus on the tone of the market, speculative trades increased their short (sold) positions in wheat and corn to now sit at the largest short position since the start of the war. As a reminder, a short/sold position is effectively a wager that the market will weaken from this point (meaning that the owner of the position will make money if the market falls).
Of course there remain risks – mainly around economic conditions and geopolitics in the Black Sea. However, the Northern Hemisphere winter crop (with the exception of the US) is in good condition after some pretty good rains as it heads into dormancy. Modern history would tell you that launching a military offensive in a European winter does not end well, so it is reasonable to think that hostilities will quieten a little over the winter period.
While harvest in Australia is in its infancy, good yields and quality out of Queensland and South Australia has given the trade some reassurance that there will be some decent milling grades among what will be another huge harvest. Western Australian quality is mixed, with lower than average protein, being compensated by big yields. Harvest is more progressed in the Geraldton port zone where roughly 40% of the crop received to date is achieving 10% protein. Harvest is yet to resume in areas recently hit by rain and storms so it will be interesting to watch if quality holds up.
So what is going to make the wheat market rally? In the short term, Geopolitics – and I’m not sure how you trade that. The current 120 day agreement puts the corridor renewal back out to mid March. It is possible we see some uncertainty and risk built back into the market as we approach this deadline. European wheat stocks have been flying out the door, with France expected to have shipped approximately 75% of its surplus by the end of December. If the US starts to pick up non traditional demand, it might push the needle up a tick, however I feel this is the least likely outcome as Black Sea and Australian stocks should be adequate for any demand profile over the next six months.
Next week
We can expect the wheat market to trade in a fairly narrow range from now until we move into the Northern Hemisphere spring. That’s the point where we can expect that the market will be prime to start jumping at shadows again.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: Refinitiv, Profarmer, CBOT, Dartboard Commodities
Photo Credit: Lydia Walter
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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.
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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.