28 Oct 2021

It is a fact that never in recent market history, fundamentals have been so supportive for our grain and oilseeds. Supplies have been hit by continuous weather events all over the major production areas and both exporters and importers are being impacted. As a result, export surpluses are becoming rare while import needs are on the rise. This combination is very supportive, and any short-term consolidation is being massively bought. 

So far, we do not see any signs of demand rationing. It is rather the opposite. Rapeseed demand is buoyant, milling wheat importers and domestic millers are fiercely competing to source volumes on the physical markets and even corn is not going down despite the current arrival of bumper supplies in Ukraine, Europe and the US. The industry margins remain healthy, and some demand is simply uncompressible (biofuel, ethanol, pasta, bread…). 

The burning question now is: how high will prices go? It is hard to answer precisely. Some traders are already looking at the record €300 level on MATIF. Some believe it might even exceed it during the second half of the season. But they all agree that old crop has very little room for weakness. But what about new crop? 

It is thus the current old crop that is taking new crop prices higher, by sympathy. And current levels, €250 on MATIF Dec22 and £196 on LIFFE Nov22 are not natural market levels. They are already reflecting a very tight new crop supply and demand situation. 

At this early stage we could start questioning these high new crop prices as drillings are taking place in globally excellent conditions so far and a restoking scenario is becoming probable. As such, in term of risk management, farmers should really consider these prices as “no regret” opportunities to engage some forward sales to protect their margins and hedge their higher production cost environment. 

In ODA, we will continue to favor a step-by-step approach and we will keep on acting with small volumes and incite our clients to walk into these unprecedented prices. Not acting would be a real risk management mistake, especially with COVID-19 cases rising again!

Sébastien Mallet