25 Nov 2021

Many are considering the current situation as unprecedented. Not only do we have a global milling wheat supply shortage, but we are also facing a very unstable world with COVID-19, La Nina and geopolitics adding some uncertainty to international production and trade. In this context, exporters are willing to limit their supplies, importers are looking to secure their stocks. This is the case for wheat, it is also the case for fertilizers. The result is simple mathematics: prices are soaring to unprecedented levels. 

Is it a short-term situation or are we entering a new inflationary cycle?

Answering this question is key for our risk management strategies. If we listen to the ECB, the BoE or the FED they all say this period of inflation (high demand, low supplies) is temporary. If we still believe in the international capitalism system, we know that high prices have always, in recent history, led to higher production and therefore lower prices. 

So, without major geopolitical changes such as a war in Taiwan or in Ukraine, or without any major weather incidents such as La Nina leading to a second consecutive drought in South America, we can only anticipate that the situation will improve in 2022 and prices could return to more natural levels. 

This change in trend is not set for tomorrow as old crop fundamentals will remain very tight and prices will need to remain high until at least February 2022 when spring planting will be taking place, starting with Maize in South America, then in the US, Europe and Ukraine. 

However soon enough, probably next spring, when markets will have more certainty of restocking probability in 2022, they will start focusing on new crop. This could be the trigger for a price fall.

So, let’s be ready to take advantage of current high prices and take some step-by-step actions to secure these profitable levels despite higher production costs. It is highly probable that we will advise you to sell 50% of your crops forward by March 2022… and probably some of your 2023 crops too!


Sébastien Mallet