13 Jan 2022

For the last month, ag. markets have been influenced by the weather risks in South America. This part of the world is key as it is the worlds largest source of soya and corn exports. After a good start in September, a record production was expected. However, La Nina has, once again, led to very dry and hot conditions in Argentina, Paraguay and the South of Brazil. Both grain and oilseed markets are therefore affected.

On the wheat front, the record crops in Argentina and Australia have clearly brought some relief to a very tight market. Record high wheat prices have also done their job: higher wheat prices compared to feed grains (barley, maize) are expected to reduce global feed wheat use and increase plantings.

The USDA report, released on the 12th of January, only confirmed trade expectations. Lower corn and soya stock level and higher wheat ending stocks were anticipated and priced.  For the last month the trend has been supportive for soya and corn while wheat markets have been drifting down. So, what’s next?

Globally, the major risk remains in South America. The soya harvest has already started and it is already too late for any improvement. However, some further downgrades could be expected.

For corn, the situation is different. The second crop is more important than the first as, for Brazil only, it accounts for 75% of the total crop. Weather conditions will therefore remain crucial in the coming 3 months. And traders will also watch the potential impact of higher fertilizer costs on planting intentions there but also in Europe, Ukraine and the US!

For wheat, we consider that most of the short-term downside is done. Low stocks and quality issues will keep world supplies very tight until the end of the season and prices should continue to reflect this situation. However, as we move closer to new crop, prices could start to reflect more actively the potential of a better supplied market for 2022/23. Here, spring weather conditions in the Northern Hemisphere will be key!

Sebastien Mallet – ODA UK