10 Jun 2021

World prices recovered from the recent consolidation on US forecast of warm and dry weather. Conditions that led to speedy planting progress continue and are now resulting in below-average crop ratings. 

Markets are very nervous as world demand could not afford any production incident in the US. Stocks are already as low as they can be and declining Brazilian production, the 2nd world exporter, has reinforced the need for a critical and fast world resupply. So, what next for prices?

On the very short term we can only expect volatility and uncertainty to remain very strong, with prices fully correlated to US weather forecasts. The risk premium should continue to support world grain and oilseed prices in the coming days…

On the longer term, we can clearly identify two different and opposite scenarios. One very bullish in case of a US crop failure. One bearish in case of improving weather conditions. The trend will be set in accordance with the next 6 weeks weather conditions. The only certainty in the market is that grain and oilseeds world stocks are very low, and they will most probably remain low throughout 2022.

All operators remember what happened in 2012 in the US with crop conditions falling during June and July. There are a lot of similarities in 2021 and such a catastrophic scenario would lead to unprecedented world supply issues and demand rationing would imply historical high prices once again.

However a US production incident is not yet a given. It is only early June and the critical period for yield is July. Favourable weather would take prices back to more reasonable levels, probably 10 to 20% lower from where they currently stand.

In terms of risk management, the best approach for farmers would be to walk, rather than run in the current supportive prices. Price history illustrates that prices can fall as fast as they go up. Markets always anticipate. So, let’s be ready to act further to take advantage of any price peak, for 2021 as well as for 2022 crops!

Sébastien Mallet