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Wheat is simply biding its time

The unsettled nature of the grain markets is composed largely around tight stocks, supply issues, war, government interventions, rising interest rates and high prices. Now you can add another element to the mix global financial crisis 2.0. The talk of recession, inflation and weakening economies is rattling the market, with the negative sentiment spilling into grain markets.

Food demand and food security tend to isolate the ag commodities from the wider financial markets.  But as one analyst pointed out, the removal of liquidity  across a range of asset classes  can leave markets strung out and prone to ‘oversized’ moves.  How this plays out only time will tell, but it adds another level of complexity to an already stretched market.

The wheat market is still firmly locked on what is happening in the Black Sea but attention will shortly turn to weather. At the minute, the wheat market is in a stage of hibernation as end users wait for new crop supplies, but also wait in hope of some kind of resolution in the Black Sea.  Big buyers are very quiet at the moment as they look for opportunities to buy dips in the market.  The trade know they have to buy, but with prices so high, the end users seem content to live hand to mouth.

US spring wheat, corn and bean crops ended up being sown and have good moisture.  Early crop conditions out of the US indicate the good to excellent condition scores sit near the top of expected ranges (70%) for this time of year.  The key will be July weather as the crops enter pollination stages.  If benign conditions prevail, coupled with slow consumer demand and worsening economic conditions, it might spark a move lower.  Flip side (there is always a flip side) is that due to tight stocks, any perceived production threat could light a buying frenzy if consumers fear that prices could climb again.

Turning attention to Ukraine, a proposal by the US to build temporary grain storage facilities on the border with Poland to help with this seasons harvest, was initially well received. However with harvest having commenced in southern regions, time is running out for this proposal to be of any use to this seasons winter crops. Upwards of 20mmt of old season crop remains in warehouses or in ports under blockade.  Turkey is still offering to help initiate an ‘export corridor’ which seems the most likely alternative to accessing Ukrainian supplies.  However, Russian actions are not matching the dialogue, so the likelihood of a corridor being established seem remote.

The week ahead….

This remains an incredibly unpredictable and volatile market.  Sometimes moves can be counter intuitive to what is happening in the wider market.  Expect the wheat market to remain choppy while we get through the Northern Hemisphere harvest and we can gauge buyer sentiment.

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Data sources: Reuters, Dartboard Commodities, Mecardo. 

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