Wheat field Australia

The wheat market has started the New Year as it finished it. International tenders are still being dominated by cheap Black Sea supplies and there’s a lack of any real bull-ish drivers to take over. Any bullish event is quickly assessed for the potential to be an immediate threat or something to watch later. If the latter, it is immediately dismissed. So apart from providing some short-term volatility, the bulls are lacking any bite.

Case in point.  The Red Sea has become a source of focus for global markets.  Houthi rebels based out of Yemen are making life difficult for merchant vessels in the world’s busiest shipping lane. This has resulted in some shipping lines having to go the long way around the Cape of Good Hope instead of the shortcut through the Suez Canal linking the Red Sea and the Mediterranean. This is adding considerable time and cost to traders who are not prepared to take the risk.  This has the potential to upset the trade in everything from crude oil to containers, grains, and oilseeds. But it hasn’t really moved the needle in grain markets simply because it is not a clear and present danger. Yet.

 

I suspect we are going to have to get used to this market behaviour for the next couple of months.  The fact is, the Northern Hemisphere is in the grip of winter without too many issues being reported.  The US winter wheat crop, while dormant, has reasonable moisture under it and is well protected by snow.  Russian winter wheat areas received some valuable moisture in December and have good snow cover.  Perhaps the one area that bears watching is Western Europe. Flooding during seeding and crop establishment has caused issues. Rabobank reports that the winter wheat area may be reduced by 11% in France.  This area however could still be replaced by spring-sown cereals or oilseeds.

 

Look for the Northern Hemisphere spring as the time the market shakes off this slumber.  We will be assessing crop conditions and sowing intentions for any hint of deviation away from normal.

Next week

Tonight the USDA releases their January update. The trade has hedged their bets by having a wide range of production estimates particularly for South American soy and corn. The one area of conjecture will be the US winter wheat area. Last year, the USDA surprised by in-creasing the sown area well above expectations. Do they adjust lower this year or surprise again to the high side? The January report rarely moves the market too much, but the USDA does like to throw the odd curve ball.

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Data sources: Reuters, Dartboard Comm’s Rabobank, Next Level Grain Marketing, Mecardo

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