After the relatively quiet last few months where the ag commodity markets have drift-ed lower, the establishment of the weather market has seen a welcome return to some volatility.
The too-dry Russian Caucuses, on-again, off-again rains in Russia, a wet France and floods in Brazil, have certainly
breathed some life back into the markets. This has
culminated in the fund managers also quitting most of their sold positions which had been adding a bearish tone to the market. The
net open interest in CBOT (futures & options) has been cut, from more than 200k sold contracts to now being around 85k sold in the space of a week.
Some heat came out of the market mid-week after much-needed rain materialised in the forecast for Southern Russian regions. Modelling indicates that the warm and very
dry conditions in the #1 wheat-growing region are virtually unprecedented and could result in below-average yields. Rain in the forecast should halt any further slide in crop conditions. Further north, a recent frost hit crops in the
Lipetsk, Voronezh
and Tambov regions, regions which account for approximately 10% of the country’s production. Crop stages were in the head emergence to flowering
resulting in fears that the region will see well below average production. The three regions affected, approximately
265kHa, have all declared a state of emergency which allows affected land-holders to apply for insurance.
Despite the production problems that Russia is experiencing, a recent
Egyptian tender reminded us that they still have the ability to dominate the import business. Of the 20 cargos tendered, 12 were of Russian origin,
all priced at US$255/t FOB. French wheat
was the next most competitive at US$266/t. Also, interesting to note is that the amount tendered of 420kmt was considerably larger than the 120kmt tendered in April and
some US$23/t higher. When the price is softening, importers tend to live hand
to mouth, for fear they buy too high. However, when prices look like rising,
the importers can buy in big licks – for fear of having to fork out more later on. It will
be interesting to watch importer behaviour over the next few weeks.
Elsewhere, the Canadian Prairies have
had an excellent start to their cropping year.
After a very dry winter which left substantial moisture deficits, the
past 10 days have seen a broad 25-100mm across the three main agricultural provinces.
This has gone a fair way to erasing those deficits
and setting up the season ahead.
Similarly, the US has seen very heavy rains in the corn belt causing a
few seeding delays. The HRW wheat regions also did well and should see the
condition reports start to improve after a period of decline.
Next week
The USDA report comes out tonight and it will be closely watched for soybean cuts in Brazil and whether or not Russian and European production gets trimmed at all. The market is bracing for corn and bean stocks to increase, prompting a round of selling before the data is released.
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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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Weather bingo card
The too-dry Russian Caucuses, on-again, off-again rains in Russia, a wet France and floods in Brazil, have certainly breathed some life back into the markets. This has culminated in the fund managers also quitting most of their sold positions which had been adding a bearish tone to the market. The net open interest in CBOT (futures & options) has been cut, from more than 200k sold contracts to now being around 85k sold in the space of a week.
Some heat came out of the market mid-week after much-needed rain materialised in the forecast for Southern Russian regions. Modelling indicates that the warm and very dry conditions in the #1 wheat-growing region are virtually unprecedented and could result in below-average yields. Rain in the forecast should halt any further slide in crop conditions. Further north, a recent frost hit crops in the Lipetsk, Voronezh and Tambov regions, regions which account for approximately 10% of the country’s production. Crop stages were in the head emergence to flowering resulting in fears that the region will see well below average production. The three regions affected, approximately 265kHa, have all declared a state of emergency which allows affected land-holders to apply for insurance.
Despite the production problems that Russia is experiencing, a recent Egyptian tender reminded us that they still have the ability to dominate the import business. Of the 20 cargos tendered, 12 were of Russian origin, all priced at US$255/t FOB. French wheat was the next most competitive at US$266/t. Also, interesting to note is that the amount tendered of 420kmt was considerably larger than the 120kmt tendered in April and some US$23/t higher. When the price is softening, importers tend to live hand to mouth, for fear they buy too high. However, when prices look like rising, the importers can buy in big licks – for fear of having to fork out more later on. It will be interesting to watch importer behaviour over the next few weeks.
Elsewhere, the Canadian Prairies have had an excellent start to their cropping year. After a very dry winter which left substantial moisture deficits, the past 10 days have seen a broad 25-100mm across the three main agricultural provinces. This has gone a fair way to erasing those deficits and setting up the season ahead.
Similarly, the US has seen very heavy rains in the corn belt causing a few seeding delays. The HRW wheat regions also did well and should see the condition reports start to improve after a period of decline.
Next week
The USDA report comes out tonight and it will be closely watched for soybean cuts in Brazil and whether or not Russian and European production gets trimmed at all. The market is bracing for corn and bean stocks to increase, prompting a round of selling before the data is released.
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Click on graph to expand
Click on graph to expand
Data sources: SovEcon, CRM Agri, Reuters, World Ag Weather, Refinitiv, Profarmer, Next Level Grain Marketing,Mecardo
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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.