The market is in a finely balanced state at the minute. The 2020 wheat crop is now largely known, albeit with a few minor adjustments to be made to the Aussie and Argentinian crops. Timely rain in the Black Sea and US Plains has removed some of the concerns around the condition of the winter wheat crop, and with prices where they are, it makes sense to expect that the area to wheat will expand into 2021. As mentioned before, global supplies are more than adequate - on paper at least. Unprecedented demand for food and feed from China, as well as the spectre of La Niña, is keeping a risk premium embedded in the market.

We can see from the table (courtesy @kannbwx) that US export pace is trending above average.  We also know that aside from corn purchases, China was relatively absent from weekly purchases.  Is this an anomaly or the beginning of a slow down?  Demand has been at the forefront of the recent growth in value, so what happens if demand falls?

We fear it could be a slippery slope. If the managed money liquidate their long/bought positions, it could see a fairly sizeable shift in futures. Secondly, as demand falls, the market will have to shift lower to find more demand.

We had been seeing a relatively orderly withdrawal of managed money from CBOT wheat.  Mecardo took a look at this in detail earlier in the week (view article here). Week on week, the commitment of traders report shows that open interest positions have fallen 57% to be ‘only’ 13k contracts long/bought. However, the Thanksgiving public holiday in the US saw a raft of profit taking ahead of the market close to see CBOT Dec ’20 fall 23c/bu. This tells me the sentiment behind wheat has changed from neutral/bullish to being neutral/bearish.

The one thing in wheats favour is that demand for corn and beans hasn’t really subsided and is unlikely to whilst the US remains the only source of immediate supply.  It is commonly thought where corn goes, wheat tends to follow. So long as China keeps buying, there should be no reason to fear a cliff face.

The week ahead….

Watch for a ‘dead cat bounce’ as the wheat market re-opens after Thanksgiving. 

Have any questions or comments?

We love to hear from you!

Click on graph to expand

Click on graph to expand

Click on graph to expand

Data sources: USDA, Reuters (K Braun), Next Level Grain Marketing, Mecardo. 

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!
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 »
Percentiles with a background image of hay bales
Cattle

Percentiles – December 2020

Mecardo’s Percentiles update for December 2020. Click below to view the latest report Grains Oilseeds Sheep and lambs Cattle Wool Dairy Fuel Percentiles are an important

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.