The wheat market has been torn between two extreme driving principles, supply and demand. Late last week, further sabre rattling coming out of the Kremlin underlined how precariously balanced the grain corridor deal really is. Reserve mobilisation, the threat of nuclear warfare and the realisation of a protracted war is building a considerable premium back into the market.
Late last week however, ag commodities started to feel the pinch of economic headwinds. Global markets were a sea of red as investors fled to safe haven assets (i.e. the USD) as talk of recession spread. The threat of recession raises the possibility of demand destruction as end users tighten their belts.
It makes for an interesting dynamic. The possibility of a supply squeeze should the Black Sea corridor fail, versus a slowing of economic growth and stagnating demand. Crude Oil is a great barometer for economic ‘health’ and for the past six months, the writing has been on the wall, with crude peaking at US$110/barrel to now being below US$80. This is all despite (or maybe because of) the energy sector, particularly natural gas hitting all time highs, piling up pressure on recessionary fears.
The ag commodities, corn and beans, are under pressure also because of improving harvest pace in the US but also a surging USD which is making US exports more expensive.
How this plays out for Australian grain will be interesting to watch. A weaker AUD and plummeting ocean freight rates (figure 1) should make our product reach further end users. However, if the US is struggling to build an export program outside of traditional inelastic demand, it may weigh heavily on futures.
Ultimately, the major influence on prices will be the Black Sea. Russia is confirmed to have a monster wheat crop of 100mmt courtesy of excellent spring wheat yields. Their export program is picking up pace albeit from a low base. Since the Kremlin announced a ‘mobilisation of reservists’, some 300kmt conscripts are expected to be sent to the front line over the next couple of weeks. It makes you wonder how the Russian new season crop will get planted. Ukrainian exports have surpassed 5mmt in the past 6 weeks, but I can’t help thinking that the corridor is on borrowed time. Russia is again targeting the port of Odessa, making the logistics of loading grain and sailing a very hazardous occupation.
The week ahead….
This weekend it is expected that Moscow will ‘celebrate’ the annexation of four Ukrainian oblasts (territories) in what would likely be seen as an inflammatory move. This comes hot on the heels of suspected sabotage of the Nordstream pipeline in the Baltic Sea, deepening the energy and political crisis enveloping Europe. Good luck navigating this.
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
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.
War ramps up pressure on wheat
Late last week however, ag commodities started to feel the pinch of economic headwinds. Global markets were a sea of red as investors fled to safe haven assets (i.e. the USD) as talk of recession spread. The threat of recession raises the possibility of demand destruction as end users tighten their belts.
It makes for an interesting dynamic. The possibility of a supply squeeze should the Black Sea corridor fail, versus a slowing of economic growth and stagnating demand. Crude Oil is a great barometer for economic ‘health’ and for the past six months, the writing has been on the wall, with crude peaking at US$110/barrel to now being below US$80. This is all despite (or maybe because of) the energy sector, particularly natural gas hitting all time highs, piling up pressure on recessionary fears.
The ag commodities, corn and beans, are under pressure also because of improving harvest pace in the US but also a surging USD which is making US exports more expensive.
How this plays out for Australian grain will be interesting to watch. A weaker AUD and plummeting ocean freight rates (figure 1) should make our product reach further end users. However, if the US is struggling to build an export program outside of traditional inelastic demand, it may weigh heavily on futures.
Ultimately, the major influence on prices will be the Black Sea. Russia is confirmed to have a monster wheat crop of 100mmt courtesy of excellent spring wheat yields. Their export program is picking up pace albeit from a low base. Since the Kremlin announced a ‘mobilisation of reservists’, some 300kmt conscripts are expected to be sent to the front line over the next couple of weeks. It makes you wonder how the Russian new season crop will get planted. Ukrainian exports have surpassed 5mmt in the past 6 weeks, but I can’t help thinking that the corridor is on borrowed time. Russia is again targeting the port of Odessa, making the logistics of loading grain and sailing a very hazardous occupation.
The week ahead….
This weekend it is expected that Moscow will ‘celebrate’ the annexation of four Ukrainian oblasts (territories) in what would likely be seen as an inflammatory move. This comes hot on the heels of suspected sabotage of the Nordstream pipeline in the Baltic Sea, deepening the energy and political crisis enveloping Europe. Good luck navigating this.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Click on graph to expand
Data sources: Reuters, SONAR, SovEcon
Categories
Have any questions or comments?
Wheat waits for a trigger
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
Should we be selling wheat?
It’s a bit of an understatement to say there is a bit going on in grain markets at the moment. Here we’ll cover price and
Black Sea bites back
Finally, we are starting to see the market react in a manner that many of us expected. For weeks, the wheat market largely shrugged off
Demand driving strong canola
Canola prices have bounced back to their recent highs and sit at levels not seen since 2022. Global supply remains solid, with perhaps some tightness
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.