A few weeks ago, we wrote that the world's corn stocks were getting worryingly tight. Earlier this week, the USDA
tightened them even further by cutting US corn yields after a dry-ish finish to their season.
The report cut US corn ending stocks by 7mmt, significantly below traders’ expectations. Soybean stocks were also cut below expectations, again courtesy of some tweaks to final yields. Wheat was relatively unchanged and initially did not illicit a price response in the market. However, corn is the grandaddy of agricultural commodities so when corn rallied hard, it was only a matter of time before wheat followed suit.
Canola has seen a lot of volatility this week. Oilseed prices had been buoyed by crude oil rallying after new sanctions on Russian oil companies, concerns over Argentina’s soy crop and importantly, the US clarifying the use of used cooking oil (UCO) in renewable fuels. The USDA has effectively banned the importation and use of UCOs in biodiesel production. This had the effect of buoying prices for canola and soybean oil as the primary feedstock of biodiesel.
Last night, however, rain appeared in the forecast for the parched Argentine corn and soy crops. Crop conditions had been sliding due to La Niña induced drought conditions, so this rain should it materialise, will help arrest any further slide. Also, the US sank the boot into their Canadian neighbours suggesting that canola oil imports would not be off the table should a tariff dispute erupt between the two countries.
The weakness in the soy market soon spilled into both corn and wheat, dragging them off their recent three-month highs and closing just above long-term support levels.
Russian weather across the agricultural region remains unseasonably mild. There are two trains of thought on this. If it remains warm, wheat could sail through the winter period relatively unharmed and bounce into spring in better condition than when it went into dormancy. The other thought is that a relatively soft crop becomes extremely vulnerable if the weather turns quickly colder. Russian weather is going to be a major driver of prices over the next few months.
Lastly, next Monday heralds the inauguration of Trump’s presidency. There is a line of thought that the proposed raft of tariffs will spur inflation which will likely reduce the US Fed’s ability to cut interest rates. This is a key factor in why the USD is so strong at the moment. Trump is however starting to walk back on some of the election rhetoric, so it will be interesting to watch how everything unfolds in the next few months.
Next week
As we move into the next month, South American harvest results will be closely watched as will the weather in key production areas.
The US President came out swinging this week with renewed enthusiasm for tariffs. This time, the targets were steel and aluminium imports with Australia right
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Will Trump 2.0 be the next Y2K?
The report cut US corn ending stocks by 7mmt, significantly below traders’ expectations. Soybean stocks were also cut below expectations, again courtesy of some tweaks to final yields. Wheat was relatively unchanged and initially did not illicit a price response in the market. However, corn is the grandaddy of agricultural commodities so when corn rallied hard, it was only a matter of time before wheat followed suit.
Canola has seen a lot of volatility this week. Oilseed prices had been buoyed by crude oil rallying after new sanctions on Russian oil companies, concerns over Argentina’s soy crop and importantly, the US clarifying the use of used cooking oil (UCO) in renewable fuels. The USDA has effectively banned the importation and use of UCOs in biodiesel production. This had the effect of buoying prices for canola and soybean oil as the primary feedstock of biodiesel.
Last night, however, rain appeared in the forecast for the parched Argentine corn and soy crops. Crop conditions had been sliding due to La Niña induced drought conditions, so this rain should it materialise, will help arrest any further slide. Also, the US sank the boot into their Canadian neighbours suggesting that canola oil imports would not be off the table should a tariff dispute erupt between the two countries.
The weakness in the soy market soon spilled into both corn and wheat, dragging them off their recent three-month highs and closing just above long-term support levels.
Russian weather across the agricultural region remains unseasonably mild. There are two trains of thought on this. If it remains warm, wheat could sail through the winter period relatively unharmed and bounce into spring in better condition than when it went into dormancy. The other thought is that a relatively soft crop becomes extremely vulnerable if the weather turns quickly colder. Russian weather is going to be a major driver of prices over the next few months.
Lastly, next Monday heralds the inauguration of Trump’s presidency. There is a line of thought that the proposed raft of tariffs will spur inflation which will likely reduce the US Fed’s ability to cut interest rates. This is a key factor in why the USD is so strong at the moment. Trump is however starting to walk back on some of the election rhetoric, so it will be interesting to watch how everything unfolds in the next few months.
Next week
As we move into the next month, South American harvest results will be closely watched as will the weather in key production areas.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Sources: Next Level Grain, SovEcon, USDA, Stone X
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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.
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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.