The traditional spring weather market has started with a bearish tone… but there is still a long way to go!

26 Mar 2021

As usual, at this time of the year, new crop fundamental prospects are taking the lead on the current situation. Even if old crop stocks are known to be very tight, traders are now looking at the future. Current weather conditions are, at this very early stage, considered beneficial for production potential. As a result, prices have been consolidating since early March.

Yet let’s be patient and accept with humility that this time of the year, because it is the most unpredictable period, is making our price forecasting job harder mostly driven by volatile weather conditions. Let’s look at the past to predict the future: April and May weather conditions are crucial to define the real production potential. Having perfect and friendly spring weather all over the key production areas simply never happens. Spring weather conditions increase market volatility and uncertainty. Spring is here so let’s focus on the main ongoing risks for prices.

Wheat, at this stage, could be considered as the most bearish crop. Furthermore, it is a reality that global production in the Northern Hemisphere is set to reach record levels in 2021 if weather conditions allow it. So far, winter kill has been limited, spring conditions are improving in the US (rains) but remain too cold in Eastern Europe and the Black Sea regions. Total acreage is set to grow from last season. The April/May rainfall will be the most important yield influencer to watch for.

Corn and soya can be considered as potentially more bullish, with higher risks on the weather front. Harvest is about to start in the North of Argentina and yield projection is set to be lower than USDA projections. Corn planting has just ended in Brazil delivering a nearly 3 week delay. Weather conditions in May will be key as 30% of the corn was drilled outside the ideal window. Most importantly, the US drilling will start soon, with the traditional weather market and weekly crop condition reports. The USDA planting intentions report will kick-start the season next week, 31st of March. The total area, set to be a record and the battle between soya and corn will be key elements to watch for.

So, let’s be prepared for volatile months in April and May. Ending stocks are tight. The World needs bumper crops to balance the S&Ds. Prices will be very reactive to higher risks. This will most certainly provide favourable for farmers to secure profitable prices for next season!

Sébastien Mallet