COVID 1 – FUNDAMENTALS 0

Sébastien
02 Dec 2021

Very strong fundamentals have taken grain and oilseeds prices to unprecedented levels in our regions. Since harvest, prices had done nothing but climb. However, what goes up needs to go down at some time. Funds and traders were all looking for a trigger to take their profits. The selling signal came from outside with a new deterioration for human health, with the potential of strong implications upon the current economical recovery.  

This consolidation is not the result of any fundamental change.  The blame sits clearly with Delta and Omicron. The Delta variant was already a concern.  Since last week, risk and uncertainty have risen massively  as a result of the Covid variant Omicron.  Markets are nervous, volatility is rising.

In this risk adversity context, all assets are going down as, at this stage, politics all around the world are taking short term (panic) measures against this new variant, making it look threatening to people and economies. Crude oil prices have been particularly hit, with a 20% drop in the past 2 weeks. 

Even if wheat and barley should be a more insulated from a fear-based demand hit, traders are more than happy to take profits off record highs. Oilseeds and corn are more correlated to energy prices. Therefore they followed the crude oil price down. 

So, what’s next for our markets? 

We have now entered a very uncertain period with two major risks: inflation (end of easy money) and Covid (vaccines may well not be as effective against the Omicron variant). These outside elements will continue to impact our markets. Prices will remain very volatile, but they should find a short-term floor as fundamentals remain supportive.

The realistic change of trend could come from a potential restocking cycle in 2022. So, considering current prices, considering higher production costs, considering higher risk and considering that margins are still elevated we will soon advise our clients to secure more volumes for next crop. We will probably act further if prices rebound in the short term… stay tuned! 

    

Sébastien Mallet 

 ODA UK