The wheat market has been steadily sold off this week as firstly the cold weather across the US and Russia has eased and investors returned to short the market. Adding pressure across the commodities was last night’s USDA report that forecast higher wheat and corn acres in the US.
The weather market is still warming up in the garage. There are a few stories that are swirling around in the ether but until the Northern Hemisphere crops come out of dormancy, the news is really thin and speculative. A wet France, a dry Black Sea, a cold Russia and a delayed Brazil, could conspire to lift the market, but until something concrete arrives, the market will continue to tread the path of least resistance.
President Trump is again throwing tariff’s around like confetti. The on again/off again 25% tariffs on Canada and Mexico have been slated to come into effect next week. It does not leave much time for the negotiators and lobbyists to strike a deal. On top of this, the President also announced that there would be an added 10% import tariff on Chinese goods on top of the pre-existing duties.
I can’t help feeling this is starting to isolate the US from the rest of the world. US commodities are reeling, and inflation fears are growing. Unfortunately, we are not immune. As CBOT sheds value on the pretence of reduced demand, it will have the effect of lowering wheat prices here as well.
The impact of these extra tariffs may take some time to be fully understood. China is particularly impacted at a time when their economy is stalling. Should the tariffs have the effect of slowing or delaying an economic recovery, it will affect everything from manufacturing to raw material demand. This is where Australia can be affected. As China makes up 30% of our total exports, a slow down there makes for a slow down here. We are already seeing a dip in our currency value against the USD – which is good for exports but makes everything we import more expensive. This is inflationary and at least to my way of thinking, puts a big question mark over further interest rate cuts.
Indian weather is starting to make headlines. The agriculturally important areas in northern and central India are reporting significant rainfall deficiencies in excess of 70%. Coupled with higher-than-average temperatures, the net effect is thought to be significantly impacting wheat during the critical grain development stages.
Should India come to the market for bigger than anticipated wheat imports, it might drive prices higher. Timing is going to be important. Currently there is export quotas on Russian wheat until June. If import demand materialises prior to Northern Hemisphere harvest, it really leaves Australia, Canada and the US as beneficiaries. Geographically Australia stands to win business. However, in today’s world of tariffs and economic coercion, don’t be surprised if the US comes up ‘Trumps’.
The week ahead….
The market feels jittery. There seems to be a lot of uncertainty around global security and trade. This could be a tough market to follow.
Give or take a few cents, the US wheat market close last night was relatively unchanged for the week. Some supportive news, including better-than-expected new
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Wheat slides on tariff talk
The weather market is still warming up in the garage. There are a few stories that are swirling around in the ether but until the Northern Hemisphere crops come out of dormancy, the news is really thin and speculative. A wet France, a dry Black Sea, a cold Russia and a delayed Brazil, could conspire to lift the market, but until something concrete arrives, the market will continue to tread the path of least resistance.
President Trump is again throwing tariff’s around like confetti. The on again/off again 25% tariffs on Canada and Mexico have been slated to come into effect next week. It does not leave much time for the negotiators and lobbyists to strike a deal. On top of this, the President also announced that there would be an added 10% import tariff on Chinese goods on top of the pre-existing duties.
I can’t help feeling this is starting to isolate the US from the rest of the world. US commodities are reeling, and inflation fears are growing. Unfortunately, we are not immune. As CBOT sheds value on the pretence of reduced demand, it will have the effect of lowering wheat prices here as well.
The impact of these extra tariffs may take some time to be fully understood. China is particularly impacted at a time when their economy is stalling. Should the tariffs have the effect of slowing or delaying an economic recovery, it will affect everything from manufacturing to raw material demand. This is where Australia can be affected. As China makes up 30% of our total exports, a slow down there makes for a slow down here. We are already seeing a dip in our currency value against the USD – which is good for exports but makes everything we import more expensive. This is inflationary and at least to my way of thinking, puts a big question mark over further interest rate cuts.
Indian weather is starting to make headlines. The agriculturally important areas in northern and central India are reporting significant rainfall deficiencies in excess of 70%. Coupled with higher-than-average temperatures, the net effect is thought to be significantly impacting wheat during the critical grain development stages.
Should India come to the market for bigger than anticipated wheat imports, it might drive prices higher. Timing is going to be important. Currently there is export quotas on Russian wheat until June. If import demand materialises prior to Northern Hemisphere harvest, it really leaves Australia, Canada and the US as beneficiaries. Geographically Australia stands to win business. However, in today’s world of tariffs and economic coercion, don’t be surprised if the US comes up ‘Trumps’.
The week ahead….
The market feels jittery. There seems to be a lot of uncertainty around global security and trade. This could be a tough market to follow.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: Mecardo, Reuters, SovEcon, USDA, Next Level Grain Marketing
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
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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.
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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.
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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.