Global weather concerns. Buoyant prices are reflecting a risk on new crop supplies in Brazil, US and Western Europe.

23 Apr 2021

It was a risk. It is starting to become reality. Brazil, US and Western Europe, all major world exporters, are facing adverse weather conditions. In a tight global stock situation, the market cannot afford any significant production decrease.

France, Germany and the UK are too dry. High pressure, situated over the British Isles is leading, once again, to very dry conditions during the crucial spring period. Yet, no rains are in the forecast for the coming week. If the situation doesn’t significantly change within the next 2 weeks, yield expectations will need to be downgraded.

In the US it is also too dry in Dakota, the major spring wheat State. Furthermore it is also too cold for corn and soya spring planting to really progress. If conditions should warm up in a weeks’ time, drilling could be slow and planting delays increase yield risks and could prevent any record acreage hopes.

Brazil also needs rain. Analysts are finally taking into account the moisture deficit on corn crops. They have reviewed their production estimates downwards. In Parana, the “good to excellent” crop rating for corn has gone from 92% to 76% last week and 62% this week.

Combined with current low stock levels, these concerns over new crop supplies are leading to odd situations, reflecting the market tightness. As a result, France is currently importing wheat from Romania and Canada has bought at least 2 panamax of Ukrainian rapeseed for August delivery. Finally, Chinese buyers have booked at least half a million tonnes of new-crop French wheat for shipment between July and September, raising the prospect that China will remain a major outlet for French wheat next season. These unusual trade flows are illustrating the traders’ concerns over stock levels.

The market is getting really nervous and, until risks are assessed, the only solution to balance global S&Ds is for demand to be rationed. For now, the only direction for prices is up.

Sébastien Mallet