DESPITE HIGHER US PRODUCTION FORECAST, PRICES REBOUND AMID TIGHT FUNDAMENTALS, STRONG INTERNATIONAL DEMAND AND ONGOING DRY CONDITIONS IN BRAZIL & ARGENTINA.

Sébastien
16 Sep 2021

After having touched multiple year highs in August, global commodity prices had been consolidating during the past 2 weeks. The main reason for this relative price weakness was that traders were anticipating the possibility of our markets entering a restocking season. Indeed they still hope for a higher US corn crop and for South American production to be seen at record level. They were proven to be wrong…

Prices strongly rebounded during the past 2 days. Markets needed more fuel to move higher. They found it in the latest StatCan report, last Tuesday. Canadian canola and wheat production are now seen to be at their lowest levels in more than 10 years and significantly down on the latest USDA forecast. A huge drop that reminded operators how tight our markets are. Furthermore, they will remain tight for a long period, at least until 2022/23. 

Simultaneously and despite high prices, world demand remains very dynamic. North African, Chinese and Middle East populations still need to eat, no matter the price level.  

Furthermore, crush and biofuel industries have retained very profitable margins thanks to strong demand and high energy prices. So far, very little demand rationing is taking place.  

Finally, Brazil and Argentina remain desperately dry as drilling field work is meant to start. As of today, there is still no significant rain in the forecast until the end of September. Traders will soon have to add a weather premium to world prices as La Nina is also looming.  Yet another production incident in South America or anywhere else is currently not reflected in today’s price levels. 

In ODA, we believe this consolidation was over-done and we remain positive on prices as stocks will remain low, production risks are still on and demand (both domestic and exports) is not being rationed at current levels. This situation should remain buoyant all along the season and is already spreading into new crop prices. Despite higher costs, farm margins will remain elevated, and farmers should now focus on producing!    

Sébastien Mallet 

ODA UK