Wheat field Australia

Another week, another very mixed result. Last week, Middle Eastern politics drew the market's attention, this week it's all about the weather.

Russia looked to receive some very welcome precipitation across the dry North and South Caucuses (basically the key southern winter wheat region). It was the building moisture deficits that had been starting to rally the wheat market and causing some market participants to offset their short/sold positions. The forecast of rain and the potential to resurrect the Russian crop was enough to see a round of profit-taking amid a belief that the market would be sold off.

 

However, weather forecasts have a nasty habit of changing. The promised rain event was a fizzer with only 5-10mm falling across the region and failing to address the building deficits. The forecast  –  depending on which model you look at – doesn’t call for any more rain for at least the next week either. It feels like it is only a matter of time before we start to see more significant cuts to Russian production.

 

French wheat is also facing an uphill battle.  After a reasonably dry couple of weeks, the weather is turning decidedly wetter again. This is a case of too much moisture across Europe’s largest wheat producer. The French crop is now rated 63% good to excellent compared to 90% a year ago. Also interesting to note that MATIF market participants (spec/fund managers) are now net LONG/BOUGHT wheat – essentially a ‘bet’ that that market will continue to rise.

 

The last bit of ‘weather’ news to hit the wires last night was the extreme weather in Brazil’s Rio Grande du Sol region. The region has been saturated by 12-20 inches of rain in the past month with forecasts calling for an additional 12 inches in the next ten days. The area is one of Brazil’s key soybean-growing regions with approximately 30% left to be reaped. This could amount to 7mmt of beans at risk. The soybean market flew out of the blocks last night, helped by the potential also for the US seeding pace to slow down after the passage of a very wet couple of days. The support to beans also flowed through to canola which enjoyed solid gains in both ICE (Canada) and MATIF (European) markets.

 

The thing about the weather market is that it tends to jump at shadows. The threat of production cuts before the event and while there is time for the crop to stabilise adds an enormous amount of volatility to the market. It can also be a time of great opportunity to price or hedge your crop. 

Next week

Maybe it should be a source of comfort that weather is as unpredictable in other parts of the world as it is here. The weather market is going to throw the odd curve ball at us for the next couple of weeks as we grapple with how it will ultimately affect total production.

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Click on graph to expand

Click on graph to expand

Data sources: SovEcon, CRM Agri, Next Level Grain Marketing, Refinitiv, Mecardo

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