As always, the wheat market is treading a fine line between supply-driven fundamentals and technical signals that drive the algorithms used by fund managers. This week, concerns over production in a few areas - namely Northern Europe and China - sparked a moderate clearing of some of the short (sold) positions held by the funds. Arguably, the collective sold positions had become a little heavy, so a correction was due.
Hot and dry conditions prevailed across much of the major Chinese wheat areas in the past week. This has driven the news cycles recently as doubts were raised over China’s ability to reach the previously forecast of 140 mmt. Much of the Henan province (China’s #1 producing area) has access to irrigation, which should have been able to offset the drought conditions, assuming reserve water is adequate. The crop will be approaching grain fill/hardening, so it is considered unlikely that further deterioration will occur. The final production will be closely watched. Production around 130- 135 mmt will likely determine if China returns to the importer space, which will ultimately play a big role in influencing whether the managed money remains heavily short.
SovEcon increased Russian wheat production by 1 mmt to 81 mmt. This is still below last year and below other analysts. The revised forecast also came with a warning that the next couple of weeks will be critical in realising the final yield. While the past month has been quite good for rains, the next fortnight appears dry at a time when the crop is reaching peak moisture use.
Last night, the US House of Representatives narrowly passed (by 215 to 214) Trump’s ‘Big, Beautiful Bill’. From an agricultural perspective, it has been met with cautious optimism by US farmers and farming groups. Several tax provisions as well as incentives for US-based energy production were introduced, paving the way for renewed investment and consumer confidence. It also cleared feedstocks from Canada and Mexico to be used in the manufacture of biodiesel and renewable diesel. It is possibly surprising that soybeans, corn, and canola did not react positively in the bill passing; however, much of the strength we have seen recently came on the ‘rumour’ that the feedstock issues would be resolved
Next week
Improved rain forecast in Australia and Germany could see wheat prices continue to slide. Fingers crossed the rain arrives in the parched SA and VIC regions that are desperate to get a start and our thoughts are with those impacted by the extreme weather and flooding in the mid-north coast
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Wheat waves short squeezes and trade teases
Hot and dry conditions prevailed across much of the major Chinese wheat areas in the past week. This has driven the news cycles recently as doubts were raised over China’s ability to reach the previously forecast of 140 mmt. Much of the Henan province (China’s #1 producing area) has access to irrigation, which should have been able to offset the drought conditions, assuming reserve water is adequate. The crop will be approaching grain fill/hardening, so it is considered unlikely that further deterioration will occur. The final production will be closely watched. Production around 130- 135 mmt will likely determine if China returns to the importer space, which will ultimately play a big role in influencing whether the managed money remains heavily short.
SovEcon increased Russian wheat production by 1 mmt to 81 mmt. This is still below last year and below other analysts. The revised forecast also came with a warning that the next couple of weeks will be critical in realising the final yield. While the past month has been quite good for rains, the next fortnight appears dry at a time when the crop is reaching peak moisture use.
Last night, the US House of Representatives narrowly passed (by 215 to 214) Trump’s ‘Big, Beautiful Bill’. From an agricultural perspective, it has been met with cautious optimism by US farmers and farming groups. Several tax provisions as well as incentives for US-based energy production were introduced, paving the way for renewed investment and consumer confidence. It also cleared feedstocks from Canada and Mexico to be used in the manufacture of biodiesel and renewable diesel. It is possibly surprising that soybeans, corn, and canola did not react positively in the bill passing; however, much of the strength we have seen recently came on the ‘rumour’ that the feedstock issues would be resolved
Next week
Improved rain forecast in Australia and Germany could see wheat prices continue to slide. Fingers crossed the rain arrives in the parched SA and VIC regions that are desperate to get a start and our thoughts are with those impacted by the extreme weather and flooding in the mid-north coast
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Data sources: USDA, SovEcon, Mecardo, 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
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.
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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.