09 Sep 2021

Following on a buoyant summer, markets are taking a breath. Traders are in a ‘wait and see’ position as contradictory signals are leading prices to consolidate. On one side fundamentals will remain very tight on all ag commodities.  On the other side, the imminent US harvest combined with the kicking drillings operations in South America are giving hope for a medium-term restocking period. Furthermore, many are starting to question Chinese grain import needs for this coming season.

The monthly USDA report, to be released tomorrow, Friday 10th of September, should provide some answers. In their latest August report, US officials had drastically cut into the US corn yield prospects, seen down to 174.5bu/a, when some private analysts now foresee yields to be above 180bu/a. The difference is huge and would have a significant impact on next season’s situation. On the wheat front, we do not expect any upgrade.

In South America, particularly Brazil, the situation is highly tense. Farmers are about to start drilling soya and 1stcorn into very dry soil. The country is just coming out from the worse drought in 100 years and La Nina has a 70% probability to remain active throughout the new season. With higher farming costs and lower margins than last year, farmers have lost some of their risk appetite. As a result, September and October rainfall will be crucial to follow as this will dictate most of the pre-Christmas price trend. No doubt then that ongoing dry conditions would drive the entire grain and oilseeds prices to record levels.

Finally, the demand side of the equation will also be scrutinized. If the inelastic international milling wheat demand should not suffer from current high prices, China is focusing most of the current concerns. The country has been very quiet during the past few months on the grain import markets.  They have covered their short-term needs. However, they are also starting to cancel some barley purchases.  Consequently they are spreading doubt on their real needs for this season. Another market story to be followed.

All in all, any short-term downside should be limited. A significant upside is still in the books. Yet all farmers should remember that, looking at history, prices have never remained for long at such current high levels. We may therefore soon take further action on both old and new crops.

Sebastien MALLET