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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Winter is for bears
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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Click on graph to expand
Data sources: Reuters, Dartboard Comm’s Rabobank, 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.
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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.