Are we are witnessing a full blown fundamental rally, or a technical repositioning of short positions? The answer could be both, as one will lead the other. The fundamental nature of supply out the Black Sea versus the money managers willing to wager a falling price.
The problems being faced in the South and Central parts of Russia finally caught the markets attention this week, after weeks of hinting that there might be an issue. The final straw seems to be a declaration of a ‘state of emergency’ (SOE) in the state of Voronezh due to the drought. The SOE is declared so locals can apply for government support in the face of hardships. FOB prices in Russia have lifted to US$228, up $5/t since last week and the highest since July. Last night, some moisture appeared in the 7 day forecast, which might account for some of the softness we saw this morning. Beyond this, the forecast remains stubbornly dry, so the next few weeks will be interesting to watch whether this trend continues across the agricultural regions.
Another piece of the puzzle fell into place this week with consumers stepping up to the plate. Egypt has purchased a huge 3.1mmt of Black Sea wheat for Nov to April delivery. Saudi is also in the market for 295kmt for delivery into the Red Sea. Given the extremely volatile nature of the area, it will be interesting to see what price and who, is game enough to put their hand up. Attention will soon switch to Türkiye as their self administered import ban lifts on 15 October.
World peace took a turn for the worse this week with Israel attacking Lebanon and Iran retaliating with missiles into Israel. We are definitely in a Risk ON period. The main consequences seem to be a rally in crude oil prices and a run for safe haven assets, in particular the USD. The surge in oil prices is due to concerns over Israels ability to hit Iran’s oil assets. This offsets the news the Saudi wants to increase production which had been weighing on oil prices and conversely oilseeds. The rise in the USD will be welcomed by Australian producers and exporters as this should help with local cereal and oilseed prices. The reverse can be said for importers of things like urea – of which 70% comes from the Middle East – as we could see prices lift on both a weaker AUD and a strengthening natural gas price.
While all the bullish chips are on the table, the trade are still waiting for some solid consumptive demand to emerge for Aussie (well anything other than Black Sea) wheat in order to lift prices.
Next week
Crop scouts are out and about in Australian paddocks. It is still bit of
a mystery how much damage has been done in NSW due to the frost. Judging by the
tweets, it looks like it could be a lot but read our grains analysis earlier
this week for more on that. Rabobank were the first to cut their production
outlook, so expect more in the coming days and weeks.
With the feeding sector growing in both beef and lamb industries, along with the traditional large consumers, chicken and pork, there has never been as
This weeks commentary is more about macro-economics and geopolitics that anything directly wheat oriented. Having climbed to over 0.70USc, the AUD has tipped over in
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Welcome back Volatility, my old friend
Next week
Crop scouts are out and about in Australian paddocks. It is still bit of a mystery how much damage has been done in NSW due to the frost. Judging by the tweets, it looks like it could be a lot but read our grains analysis earlier this week for more on that. Rabobank were the first to cut their production outlook, so expect more in the coming days and weeks.
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Sources: SovEcon, Reuters, S&P Global, Next Level Grain
Categories
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Is there any action in feed grain?
With the feeding sector growing in both beef and lamb industries, along with the traditional large consumers, chicken and pork, there has never been as
Technical twist drives wheat
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The Australian dollar relative to the US dollar has lifted to levels not seen since early 2023, and not sustained since early 2022. We all
Macro take the wheel
This weeks commentary is more about macro-economics and geopolitics that anything directly wheat oriented. Having climbed to over 0.70USc, the AUD has tipped over in
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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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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.