May we live in interesting times - to paraphrase an ancient Chinese curse - seems particularly apt in commodity markets right now. The very strong rally we’ve seen across all commodities, took a breather this week. End of the month, some profit taking and some rain in key areas allowed the market to take the foot off the pedal. Make no mistake, the bull channel we are in, especially for corn, hasn’t gone away. The next 3-4 months will be under the microscope as corn planting, then development and most importantly, pollination in July/Aug, will be scrutinised for any hiccups.

Wheat in isolation doesn’t have too many problems at this early stage, but will likely remain a follower of corn.  You could make an argument that as wheat is cheaper than old crop corn, more and more wheat will be fed. This may tighten the balance sheet enough to make a story, but at this point, wheat will go with the flow.  The rapid rise in prices has distorted world trade to a degree with rumours of a French cargo of wheat being delivered to the US East Coast.

Rains fell across the most northern (and arguably the most important) areas of Brazil last week but largely missed the southern half of the safrinha corn areas.  NDVI data shows some improvement in the state of Matto Grosso, but the states of Matto Grosso do Sul and Paranã look to be in big trouble.  Some estimates are calling the Brazilian crop around 95mmt, down from 105mmt, which leaves a significant dent in global supplies.

US winter wheat crop conditions dropping from 53% gd-exc (good to excellent) to 49% gd-exc gave the market bit of a surprise, although this was balanced out by rapid spring wheat planting (28% planted versus 19% on average).  Conditions through the northern US Plains and Corn Belt (Iowa, Illinois, Minnesota) have also been dry, and none more so than North Dakota. While these conditions make for quick seeding progress, it does raise the spectre of drought conditions moving into Summer.

It is not all bad news (in terms of production). A previously dry western Europe looks to get a healthy shot of moisture this week.  Look to see MATIF canola futures lose some ground as some of the risk premium gets eaten up.  Similarly, the Black Sea regions in southern and central Russia and Ukraine have had good rains in the past month, building potential for another big production year.  There has been some winter kill through central Russia but these areas will likely get resown with spring wheat or sunflowers and conditions are to say the least, favourable.

Commodity Conversations

The week ahead….

Watch for increased volatility.  CME group will expand daily trading limits on corn, wheat and beans on May 3. This is in response to several of the commodity groups trading to their limit and locking out participants.  

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Data sources: USDA, Reuters, Dartboard Commodities, World Ag Weather

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