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.
The seasons in the north and south couldn’t be more different in terms of rainfall and crop progression. While somewhat overshadowed by market movements, the
The United States Department of Agriculture is forecasting a record soybean crop in the US, as large plantings and good growing conditions continue to see
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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.
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Wheat out of whack with reality
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.
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Data sources: Reuters, USDA, SovEcon, Next Level Grain Marketing, Mecardo
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
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.
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.
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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.