Agricultural markets are sharply lower as the weather premium gets washed out and the seven-day US forecasts give variable amounts of rain. Chicago wheat has lost almost $30/t since Monday’s rally on profit taking into the month/quarter end, despite continuing deterioration of US corn and soy crop ratings. USDA will issue an updated US acreage report in the next few days, which is expected to show a slight decline in planted corn area, but little change on wheat, from the March report.
Several fundamentally bearish news stories are creeping into markets now. StatsCan reported Canadian all-wheat area at 26.9m acres, which is a 22-year high and slightly above average trade guesses. Ukraine’s UGA has stated the 2023 crop could be well above previous estimates due to strong yields, but will the world be able to efficiently access this grain given the uncertainty over the extension of the Black Sea grain export initiative? US corn has given back all gains made over the last two weeks, as improved weather prospects are leading markets lower. Tempering of adverse growing conditions in parts of Europe and China is also fuelling selling – so it’s not just a US weather story.
UK market feeling heavy
Domestically ADM is reporting that the UK market is feeling heavy. Production is going to be around 16m tonnes, while cheap barley and maize continue to attract buyers at favourable discounts to wheat, reducing domestic demand. Ultimately, the quest to export will rely heavily on the willingness of UK farmers to release stocks, particularly at harvest. Currently, liquidity of supply remains an issue, but they are expecting a pick-up in farm selling over the next few weeks. The market is trading a carry from July through to new crop which is indicative of a huge carry-out and we’re just starting to see the harvest discount widen out as the supply pressure starts to build.
In summary, during the recent rally, markets traded dryness and falling crop ratings. On the way back down, markets have traded ‘forecasted rain’. It’s a lot about sentiment, but the wild swings we’re seeing in prices will remain until something fundamentally grips this market. Weather will continue to drive the markets over the short term, although the USDA data released tomorrow, and the global S&D update on 12 July may provide external support to the wheat complex, especially if the USDA slashes its yield projection for US corn.
