grain bulk carrier ship

Last week’s USDA Agricultural Outlook Forecast (AOF) certainly tipped cold water on agricultural markets. While the production figures printed are little more than a best ‘guesstimate’, it changed the sentiment around pricing. In short, the report indicated a rebuilding of stocks across the three agricultural commodities. Market participants used this as an excuse to sell off some of their positions, especially in corn which had built a large long (bought) position.

Wheat has also been crunched after the Chinese voiced their support for the renewal of the Black Sea Grain Initiative (Corridor).  This was one of the key principles of a 12-point ceasefire plan offered by Beijing to try and ease tensions in the Black Sea.  As a net importer of agricultural goods, it is in China’s best interest that the Grain Corridor is continued.  The market took the news that Russia’s chief ally was advocating for a ceasefire as a fait de accompli that the corridor would be renewed.

Moscow, however, loves to spin a good story. Still unhappy with Western sanctions and so-called political interference in their export program, the Russians have come out and said they will walk away from the deal if their agricultural sector is overlooked.  It should be noted, Western sanctions are not imposed on Russian-origin food and feed commodities but are indirectly through shipping and insurance.

Over the next couple of months, the agricultural market will get a much clearer idea of US farmers’ sowing intentions.  With corn and soy stocks relatively tight, I suspect we can assume there will be some stiff competition to ‘buy’ acres.  Corn looks like it should be the biggest winner due to decreasing input costs and a corn belt that has seen good winter moisture.

Wheat will likely continue to trade in a relatively narrow band.  Russia continues to set the bar low with cheap and abundant wheat and the Australian export program is running hot.  There are a few areas of concern including a dry Hard Red Winter (HRW) wheat area, in particular Kansas and Texas which have a crop rating of poor to very poor at 51% and 49% respectively. Western Europe has had a dry end to winter, and while the crops there have avoided any frost damage, there is a building moisture deficit, especially in France.  There is plenty of time left for Spring rains to bring these crops home.

Next week

It remains an unpredictable and ultimately volatile market. After the past week’s losses, the wheat market looks oversold.  How much it can recover will depend on Spring weather and geopolitics.

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Data sources: Reuters, Next Level Grain Marketing, World Ag Weather, Mecardo

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