Prices should remain volatile and very reactive to weather conditions until all crops are in the barn!

29 Apr 2021

What an amazing week again for the ag markets! This unprecedented volatility remains very much correlated to the corn situation. Stocks are very low, demand is strong and production risks remain very elevated. This situation is taking upwards all other commodities, especially wheat and barley.

On the supply side, we already know that world stocks are very low for all 3 major commodities, with soya and corn leading the race. Wheat is also starting to develop its own bullish fundamentals. Bumper production is therefore needed to balance the tight global S&D. Decent crops would only stabilize it. Further risks would take us to unprecedented shortages. Yet this is what markets are pricing at the moment!

On the weather front, risk is materializing on the Brazilian corn crop. Traders and analysts are now considering very seriously the ongoing dry conditions over the Brazilian Safrinha (this accounts for 80% of the total domestic production). While the USDA was still expecting 109 Mt in the last report, we now see the Brazilian production below 100 Mt. Weather forecast remains dry for the majority of the corn area and further downgrading could happen soon. A crop failure in the 2nd largest world corn exporter, would inevitably take prices to an even higher level. Harvest should start in full in June.

In the US conditions are improving with higher temperatures and rains in the forecast. Same for Europe where most of the wheat areas should receive up to 30mm next week. This will provide a very much needed relief to crops, yields and farmers!

On the demand side, prices have not fully completed the job to ration demand. China remains very active on the grain markets and margins remain very profitable for biofuels, crush and the ethanol industry. However rationing of corn demand has begun for feed compounders as they are switching from corn to wheat, adding massive demand upon this commodity.

All in all, we believe that prices should enter a short-term consolidation period as US farmers will catch up with the early planting delays, furthermore weather conditions are also improving in the EU. However let’s remain very cautious as markets will remain very nervous until all crops are in barn! Production risks will remain elevated until at least July 2021!

Sébastien Mallet