Spring conditions too cold and too dry in the US and Europe: prices are back at the season’s highs amid weather concerns.

Sébastien
16 Apr 2021

In March, when crops were safely coming out of winter, some analysts might have been slightly over optimistic when forecasting record crops for the N. hemisphere. This sudden bearish tone scenario was based on higher acreage and stronger yields for Europe and the US.

In April, not only the US planting intentions disappointed their initial predictions but now the weather is starting to show signs of adversity (as it always does sometimes, somewhere during spring). Furthermore we knew how sensitive prices would be to any risks, given the current very tight stock levels.

Climatic risks are currently focused on the moisture deficit in the north of the US and south of Canada. The current moisture deficit is the main driver and funds interest for our commodities is raising. For instance, they are now holding a 50Mt long position on CBOT corn (15% of the total US production!). In addition, the US weather service has announced a new cold snap in the US for next week, raising fears of frost damage to the recently drilled spring crops. These conditions would also slow down planting progress.

Europe is also another source of concern. Temperatures have been nearly 5°C below normal and a large part of Western Europe is facing a significant rainfall deficit. In France, this week, temperatures reach -8°C locally, potentially damaging early planted spring barley, flowering OSR and in some areas, wheat plants. Sugar beet has also suffered a lot.

As a result, season’s highs were reached on the CBOT corn and the MATIF wheat and OSR exchanges yesterday. A weather market always provides nice opportunities for farmers to engage volumes before harvest. So, let’s “buy the rumor and sell the fact”, as weather concerns are often overdone.
It is possibly too soon as weather market could last until June and with the Brazilian corn production still under question. However let’s be ready to act, step by step, with small volumes, to catch these profitable price opportunities.

Sébastien Mallet
ODA UK