We have seen a powerful shift lower in commodity markets this week. The developing story that a Turkish administered export corridor from Ukraine through the Black Sea is gaining traction. Turkey is in an ideal situation to be arbiter between the warring parties as it is considered a ‘friend’ by both sides. The UN is keen to try and disrupt the looming food and energy crisis that has enveloped the world since the start of the war, and has given its tacit approval. Now all that has to happen is an agreement on whether any sanctions currently levied on Russia are relaxed and by how much.

The wheat market has lost 77c/bu or AU$54/t (helped by an appreciating AUD) in the past week and perhaps more importantly, the speculative crowd have also rushed for the door to the tune of 100k long (bought) contracts in an impressive display of profit taking.  It is testament to how sentiment has soured in the ag commodities over the past week.

Double teaming news of an export corridor, was realisation the US has made impressive gains in sowing pace for spring wheat, corn and soybeans.  The row crops are now pretty much on par with average in terms of planting pace and early observations indicate a very healthy corn crop.  Sentiment here is also turning sour with corn futures having breached the 100 day moving average – an important technical measure that can signal market trends.

US Spring wheat is now 73% sown up from 43% last week.  North Dakota is still only 53% sown versus 91% for the 5 year historical average.  Given that North Dakota represents 51% of the nations spring wheat crop, there are some doubts over whether all intended acres can get planted and whether they achieve trend line yields.  The market however, seems to have ignored these hypotheticals and is instead focusing on rapid planting and good (too good?) moisture levels.

Market participants have headed to the sidelines with the Northern Hemisphere winter wheat harvest about to commence.  This is another reason why the wheat market and other commodities have seen a sell off.  As this years crops production becomes known, the market will turn attention to summer weather for the corn and bean crops as well as spring sown wheats.

The week ahead….

Turkey will host a meeting with the UN, Russia and Ukraine on the 8th June to discuss the export corridor.  It seems to me the ball is in Russia’s court.  It will just depend on what concessions the UN and Ukraine are willing to make in order for the grain to flow.

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Data sources: Reuters,  Mecardo

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