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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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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