It feels like it has been a relatively stable week in the soft commodity baskets. As always, there is a raft of bullish inflows being balanced out by bearish data. Given the rapidly envel-oping Northern Hemisphere harvest is providing a virtual wet blanket on the market, there are enough questions to suggest that there is limited downside risk in the short to mid-term.
News out of Ukraine suggests that early harvest yields in the south are below expectations. A dry stretch, coupled with some frost issues, has seen sub-optimal yields for winter wheat and barley. Yields are expected to improve as harvest progresses. Russia too, has had some mixed signals. Several provinces have declared a ‘state of emergency,’ citing drought issues. SovEcon has mentioned recently that early yields are well below average in early key growing regions. Yet, forecasts for Russia’s production continue to ratchet higher, with analyst ICAR lifting their estimate to 85.2mmt. This compares to SovEcon and USDA on 83mmt.
Canada is starting to creep into the consciousness of markets, with forecasts of a 2-4 degree warmer-than-average summer casting a few doubts over crop production. Crop conditions are in line with the 10-year average, but there are large swathes of country that have not the stored soil moisture that would normally get them through summer. Weather models for the next week indicate the potential for a good drink through to a sprinkle — i.e. they are not in alignment — and with temperatures starting to warm up, the next few weeks could prove critical.
USDA report on China is suggesting that Chinese wheat demand could increase slightly by 1.5mmt to around 6mmt. This remains well below the 10mmt we have seen in recent times. It will be interesting to see how tightly Beijing holds the importers’ reins this year, with Bloomberg reporting a total production of 133-135mmt compared to the 140+mmt last year. It is the subdued participation of the world’s largest importer of agricultural goods that has been leading prices lower.
Geopolitics are never far from directing the course of prices in recent times. The US’ decision to halt some military aid — in particular air defences — to Ukraine (again) carries with it a risk of further escalation and limits its ability to defend key infrastructure. The Black Sea remains a troubled area, and any further disruptions to supply from the region can’t be ruled out.
Canola has been at the forefront of political decisions this week. Canada introduced a Digital Services Tax which included a tax on cryptocurrencies. As a key beneficiary of digital currencies, President Trump abruptly cancelled all trade talks with Canada, which sent GM canola prices spiralling. However, the good thing about being nimble, the Canadian PM exempted the crypto tax, opening the door to trade talks again, reversing the fortunes of canola, which has regained everything it lost. Canola (ICE) then gained another leg upon the passing of Trump’s ‘big, beautiful bill,’ which should unlock the impasse of biofuel feedstocks from Canada.
Next week
With harvest in full swing, expect prices to trend sideways as importers take full advantage of lower prices and readily available stocks.
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Wheat rides the cycle
News out of Ukraine suggests that early harvest yields in the south are below expectations. A dry stretch, coupled with some frost issues, has seen sub-optimal yields for winter wheat and barley. Yields are expected to improve as harvest progresses. Russia too, has had some mixed signals. Several provinces have declared a ‘state of emergency,’ citing drought issues. SovEcon has mentioned recently that early yields are well below average in early key growing regions. Yet, forecasts for Russia’s production continue to ratchet higher, with analyst ICAR lifting their estimate to 85.2mmt. This compares to SovEcon and USDA on 83mmt.
Canada is starting to creep into the consciousness of markets, with forecasts of a 2-4 degree warmer-than-average summer casting a few doubts over crop production. Crop conditions are in line with the 10-year average, but there are large swathes of country that have not the stored soil moisture that would normally get them through summer. Weather models for the next week indicate the potential for a good drink through to a sprinkle — i.e. they are not in alignment — and with temperatures starting to warm up, the next few weeks could prove critical.
USDA report on China is suggesting that Chinese wheat demand could increase slightly by 1.5mmt to around 6mmt. This remains well below the 10mmt we have seen in recent times. It will be interesting to see how tightly Beijing holds the importers’ reins this year, with Bloomberg reporting a total production of 133-135mmt compared to the 140+mmt last year. It is the subdued participation of the world’s largest importer of agricultural goods that has been leading prices lower.
Geopolitics are never far from directing the course of prices in recent times. The US’ decision to halt some military aid — in particular air defences — to Ukraine (again) carries with it a risk of further escalation and limits its ability to defend key infrastructure. The Black Sea remains a troubled area, and any further disruptions to supply from the region can’t be ruled out.
Canola has been at the forefront of political decisions this week. Canada introduced a Digital Services Tax which included a tax on cryptocurrencies. As a key beneficiary of digital currencies, President Trump abruptly cancelled all trade talks with Canada, which sent GM canola prices spiralling. However, the good thing about being nimble, the Canadian PM exempted the crypto tax, opening the door to trade talks again, reversing the fortunes of canola, which has regained everything it lost. Canola (ICE) then gained another leg upon the passing of Trump’s ‘big, beautiful bill,’ which should unlock the impasse of biofuel feedstocks from Canada.
Next week
With harvest in full swing, expect prices to trend sideways as importers take full advantage of lower prices and readily available stocks.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Click on graph to expand
Data sources: Bloomberg, CRM Agri, SovEcon, USDA, Mecardo
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Have any questions or comments?
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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.
MEET THE TEAM
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.
SERVICES AND CAPABILITIES STATEMENT BROCHURE
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.