Pouring of grain from above

It is fair to say that recent moves in the wheat market have most analysts scratching their heads. While the downtrend has been in place for some time, the fundamentals really don’t support the move.

Global wheat stocks to use and prices are lower than a year ago, carryover is also lower. Respected Russian analyst Andrey Sizov (SovEcon) succinctly Tweeted this week “Another day…another red candle in #wheat. If the downtrend holds, $6.80 looks like the next target (while fundamentally we should be close to $8)”.

Yet wheat remains in a death spiral and the short (sold) positions in the Chicago Board of Trade (CBOT) continue to grow.  The funds (speculative fund managers) are firmly in control and money flow is dictating price action.  CBOT (and other exchanges) are no longer operating as they were intended.  However, the wheat market is looking seriously oversold and is in a perilous position.  It will need only a spark to spook the commercials, and the resultant run for cover could be quite spectacular.  For now, the December wheat contract is now at its lowest point in 18 months, and it’s a testament to plentiful supplies and stiff competition out of Russia.

The corn and bean markets had been supported by concerns over the Argentinian crop.  This week’s World Agricultural Supply and Demand Estimates (WASDE) report saw the USDA significantly cut production but it wasn’t enough to really change sentiment.   Not to be outdone, the Buenos Aires Grain Exchange (BAGE) cut its production estimate for soybeans to 29 mmt from 33.5 mmt previously.  Corn was reduced to 37.5mmt from 41mmt with an expectation that further cuts are possible. 

The giant gorilla that is the huge Brazilian crop is starting to weigh on the market.  Harvest is well advanced and Brazil will be the world’s dominant player in soybean exports.  US export demand is poor and China isn’t showing a rapid rebound from its COVID-induced economic woes.

After a dry winter, France and much of western Europe look to get a decent shot of rain in the coming week.  It is a start, but the market (and farmers) will be looking for a lot more to make up for the deficit.

Next week

Short term, it appears that we are going to see continued weakness in the wheat market.  We are approaching the business end of the Northern Hemisphere crop year.  There will be plenty of speculation regarding US Hard Red Winter (HRW) and the Canadian Plains not to mention the gap being left by reduced Ukrainian production and a return to average (potentially El Niño?) conditions for Australia.  We’d expect this to have more impact on new season prices than old crop. 

Have any questions or comments?

We love to hear from you!

Click on graph to expand

Data sources: Reuters, USDA, SovEcon, Next Level Grain Marketing, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!
Grains & Oilseeds

Jack tours Russia

To start the week, the wheat market got a very nice little push courtesy of Russian frosts, a bullish USDA report and technical short covering.

Read More »
Wheat plants _ image
Grains & Oilseeds

Benign May WASDE

It’s May and the new season World Agricultural Supply and Demand Estimates (WASDE) from the United States Department of Agriculture (USDA) is out. The WASDE

Read More »
Grains & Oilseeds

Weather bingo card

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

Read More »

Want market insights delivered straight to your inbox?

Sign up to the mailing list to get regular updates to new analysis and market outlooks

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
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.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin

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.