With a truncated trading week due to the US Presidents Day public holiday, combined with much of Asia closed for Lunar New Year celebrations, you would normally expect market activity to be subdued. Instead, volatility crept back in as an early weather narrative and rising geopolitical tension gave traders something to engage with.
Heading into the week, markets were already being nudged higher by technical factors. Some speculative traders moved to cover short positions on emerging weather concerns, helping prices grind upward. Whether those concerns are justified or simply an opportunistic rebalancing of positions remains unclear.
(As a reminder, a ‘technical’ move reflects positioning changes driven by speculators, money managers or algorithm traders. By contrast, a ‘fundamental’ move is typically underpinned by a genuine shift in supply and demand.)
Weather has provided the initial spark. Expanding drought conditions across the US now show 41% of winter wheat acres classified as being “in drought”, up sharply from 23% this time last year. At the same time, US HRW wheat area is expected to contract from 17.0 million acres to 16.3 million. Together, this appears to have been enough to unsettle some of the more bearish traders.
Geopolitics added another layer of support. Peace talks between Ukraine and Russia in Geneva were short-lived, lasting barely two hours, after negotiations broke down over the core issue of territory. With that central sticking point unresolved, all other agenda items became irrelevant. The failure of talks saw risk premium creep back into wheat prices as hopes of a rapid resolution faded.
Meanwhile, attention has shifted to a potential escalation in the Middle East. Iran faces renewed tensions with Western powers over its nuclear ambitions and the regime’s response to domestic unrest. The US and Israel have increased their military presence in the region as a clear warning to Tehran, reopening what many had assumed was an old and relatively dormant front.
The implications for commodity markets bear watching. Iran is a relatively minor net importer of agricultural commodities, limiting any direct impact on global grain supply and demand. However, it is a significant exporter of oil and fertiliser and controls the Strait of Hormuz, a critical global shipping corridor. The key risks lie in higher energy and fertiliser prices, along with increased freight and insurance costs.
An interesting longer-term perspective comes from a recent StoneX wheat chart for the 2026/27 season. Based on a return to “average” yields, global production is projected to fall by around 30mmt. While this appears significant on paper, the decline is largely offset by the build-up in global carryout this season. Net stocks are only expected to tighten by roughly 11mmt, equating to a modest 0.6% reduction in stocks-to-use. US production is also notable at an estimated 47.9mmt, sitting toward the lower end of the past decade’s range of 44.9mmt (2021–22) to 62.9mmt (2016).
Next week
Outside of the ongoing geopolitical narratives, there is little to drive the global wheat market next week. FOB values remain stubbornly stable despite movements in futures and currency markets — a strong signal that, for now, the global wheat market remains comfortably supplied.
The surge in the energy sector has also spilled over into alternative fuels, primarily corn ethanol and biodiesel. If the conflict drags on, pressure will
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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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Will these ripples build into a wave?
Heading into the week, markets were already being nudged higher by technical factors. Some speculative traders moved to cover short positions on emerging weather concerns, helping prices grind upward. Whether those concerns are justified or simply an opportunistic rebalancing of positions remains unclear.
(As a reminder, a ‘technical’ move reflects positioning changes driven by speculators, money managers or algorithm traders. By contrast, a ‘fundamental’ move is typically underpinned by a genuine shift in supply and demand.)
Weather has provided the initial spark. Expanding drought conditions across the US now show 41% of winter wheat acres classified as being “in drought”, up sharply from 23% this time last year. At the same time, US HRW wheat area is expected to contract from 17.0 million acres to 16.3 million. Together, this appears to have been enough to unsettle some of the more bearish traders.
Geopolitics added another layer of support. Peace talks between Ukraine and Russia in Geneva were short-lived, lasting barely two hours, after negotiations broke down over the core issue of territory. With that central sticking point unresolved, all other agenda items became irrelevant. The failure of talks saw risk premium creep back into wheat prices as hopes of a rapid resolution faded.
Meanwhile, attention has shifted to a potential escalation in the Middle East. Iran faces renewed tensions with Western powers over its nuclear ambitions and the regime’s response to domestic unrest. The US and Israel have increased their military presence in the region as a clear warning to Tehran, reopening what many had assumed was an old and relatively dormant front.
The implications for commodity markets bear watching. Iran is a relatively minor net importer of agricultural commodities, limiting any direct impact on global grain supply and demand. However, it is a significant exporter of oil and fertiliser and controls the Strait of Hormuz, a critical global shipping corridor. The key risks lie in higher energy and fertiliser prices, along with increased freight and insurance costs.
An interesting longer-term perspective comes from a recent StoneX wheat chart for the 2026/27 season. Based on a return to “average” yields, global production is projected to fall by around 30mmt. While this appears significant on paper, the decline is largely offset by the build-up in global carryout this season. Net stocks are only expected to tighten by roughly 11mmt, equating to a modest 0.6% reduction in stocks-to-use. US production is also notable at an estimated 47.9mmt, sitting toward the lower end of the past decade’s range of 44.9mmt (2021–22) to 62.9mmt (2016).
Next week
Outside of the ongoing geopolitical narratives, there is little to drive the global wheat market next week. FOB values remain stubbornly stable despite movements in futures and currency markets — a strong signal that, for now, the global wheat market remains comfortably supplied.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Click on graph to expand
Data sources: StoneX, Reuters, Bloomberg, USDA, 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.
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.