MARKETS:
Monday Check-in
With crop estimates reset, it’s back to Trade Flow Sudoku.
Summary
- Wheat prices show signs they will set season lows once corn prices set their low.
- Corn prices are likely to set lower lows soon.
- The Trade Wars are siloing oilseed prices.
- US soybean prices likely head higher, but without the usual implications for other oilseed prices.
- Canola now has a Canada/non-Canada split, likely boosting Australian canola prices somewhat.
Macro
FX: The US Dollar had an on-trend week, mostly weakening. The greenback’s influence was minimal, given much greater crop and SnD influences. Our default remains for the greenback to drift modestly lower. The greater chance of lower short-term US interest rates is a key influence. That drift is supportive for US prices but will frequently be swamped by other influences.
Energy: Oil prices were little changed last week. Analysts’ consensus is that the oil market is on a path towards excess supply. Of course, OPEC actions can change that quickly. Absent action, the backwardation in the futures market will come under pressure. And, without backwardation, investors’ commodity allocations come under pressure.
Rates: The Fedspeak continues to suggest lower US short-term interest rates. The market will continue debating the size and speed of the cuts. So, we continue to expect this source of carry costs to fall modestly. A modest fall is not going to dramatically reduce carry spreads.
Wheat
Crop
Season 2025 wheat crops are being revised up a little.
- Russia’s crop is being revised up a little because of the agri-ministry’s slightly higher area estimate (~1mmt to ~85mmt).
- The USDA finally got around to cutting its China wheat crop estimate (-2mmt to 140mmt), but that is confirmation rather than news.
- GIWA upped its estimate of Western Australia’s 2025 wheat production by more than 2mmt to 11.5mmt.
- The Rosario Exchange upped its Argentina 2025 wheat crop estimates a little to about 20mmt.
This news flow, along with a lack of crop worries for now, reinforces a benign context for wheat. Ahead, season 2026 northern winter planting begins in September.
SnD
The crop comfort still dominates wheat’s SnD. The USDA’s updated estimates tightened things up a little, but the market’s other adjustments largely offset that.
The secondary issue remains the slow flow of wheat to the market from Ukraine and Russia. That slow flow has several consequences:
- Buyers are bidding up prompt wheat in Europe, sending prices up to premiums.
- That same demand is perhaps spilling into strong US export sales.
- Russia and Ukraine likely remain motivated sellers for longer,…
- …potentially overlapping with Australia’s harvest.
The slow flow issue is likely primarily about re-arrangement. Europe exports more now, Ukraine and Russia more later. However, substituting in US wheat is potentially different because the US has heavy inventories. Thus, the US can export more now with less offsetting reduction later, remaining a westward competitor. Black Sea wheat’s later presence is likely an issue for Australia’s exports anyway. But, might be more so if those late exports head eastwards as Australian supply ramps up.
Markets
Investor positions in wheat futures continue to have a short bias. Investors again made a hefty addition to their short position in SRW Wheat. And their short in HRW wheat futures remains large. Neither short position is historically extreme, but they are nonetheless large. Thus, investors are vulnerable to upside moves and might strongly reinforce such moves.
The View
Wheat prices made marginal new lows last week. The move lower proved, yet again, that wheat prices have little traction while corn prices are weakening. The global wheat SnD balance offers little resistance to that negative context. Yet there was some cause for optimism in wheat prices’ response to confirmation of feed grain comfort. The new lows for US wheat prices are only marginally lower. By about 5¢ for SRW wheat and barely 1¢ for HRW wheat (US¢/bl, September contracts). So perhaps the market is starting to find a floor after all. We continue to think that important parts of the context favour at least stable prices. Wheat’s SnD is neutral at best (and nowhere near comfortable), and prices are low. A pairing that suggests prices have already adjusted and, arguably, then some. The US Dollar trending lower remains a modest source of support. Momentum, however, remains a negative that supports investors’ short positions. So, momentum becomes a focus for wheat prices. Along with, of course, whether corn prices can establish a low for the season.
The outside risk remains the Russia-Ukraine war. Friday’s meeting between the US and Russian Presidents, unsurprisingly, did not yield any obvious progress towards peace. The protagonists remain a long way apart on a long list of issues. So, as of now, there is little reason to think that peace is any nearer. Not that peace, in our view, matters much for wheat prices. The conflict remains an upside risk for prices. But that risk is so low probability and high specificity that prices carry little to no war premium. Thus, a peace is not a pretext for lower prices.
Coarse Grain
Crop
Are we at, or perhaps passing, a peak for coarse grain crop estimates? Last week, the USDA massively increased its US corn crop estimate. And CONAB made a hefty, and long-anticipated, increase to its Brazil corn crop estimate.
Those estimates will anchor the market’s crop forecasts at these higher levels. That anchoring will do two things. One, the market’s forecast range will be much narrower. And, two, the risks around those forecasts become symmetrical. In that forecast context, increasing corn crop losses across Europe, Ukraine, and Russia are important. And even more minor issues count. The US’ northern Delta is too dry. And then there are the minor downsides of the US’ wet summer. These issues will go nowhere near offsetting last week’s additions by the USDA and CONAB. But they can stabilise global crop forecasts at modestly lower levels for now. Or, at least until 2025 southern summer crops blink onto the market’s radar.
SnD
Crops continue to be the biggest issue for coarse grain SnDs. The Trade-Flow Sudoku also continues evolving. The fast pace of US corn exports continues to generate intrigue. Just how much of the ‘overs’ on US corn exports is because Brazil’s corn was, until recently, emerging slowly? CONAB confirmed that there’s plenty of corn in Brazil. The other evolution is how much Europe/Ukraine/Russia corn will need to be replaced. That replacement adds some extra demand for Brazil and US corn.
Markets
Investors added to their short corn positions up to the USDA’s doozy WASDE. The position is not extreme, so there is no sense that the position is exhausted. And long-cycle momentum is still strongly negative, supporting further investor selling.
The View
The big lift in corn crop estimates knocked corn prices down to new lows for the season. Friday’s bounce recovered a lot of that fall. For choice, we reckon the market gives back that bounce. Last week’s data shifted the coarse grain SnD a long way. A brief tryst below 4$ seems too brief. The US and Brazil still have a lot of corn to place, so somewhat lower prices seem very likely near-term. And that fall will be quicker if Brazil’s exports sustain their early August pace. While we think crop forecasts have peaked, the decline from the peak will be modest. The US Dollar caveat still matters. A likely lower US Dollar will slowly support US prices. The greenback’s trend lower, though, will not be smooth, so it can be a hindrance from time to time.
Oilseeds
Crop
Last week’s USDA WASDE also cut US soybean production sharply. That cut was less influential for oilseeds than for grains. While there is less US soybean planting, the USDA still upped the US yield. So the US soybean crop estimate is about 1.1mmt lower.
Oilseed weather issues continue to worsen. Sunflowerseed and soybean crops are shrinking across Europe, Ukraine, and Russia. US soybeans have a smaller and less urgent issue in parts of the Mississippi Delta. The Old World issues are large enough to materially reduce global oilseed supply. These issues can generate some support for prices.
SnD
The new USDA production estimates did not much change the overall global oilseed balance. That balance, simply, remains close to neutral. The Trade Flow Sudoku, by contrast, is getting more complex by the week.
The trade implications of fewer US soybeans are significant. The US market continues to wring its hands about how to replace China’s purchases of US soybeans. After last Tuesday’s WASDE, the market has 1mmt less US soybeans exports to place. Lower oilseed production in Europe is also helpful in this respect. The US is the logical source for replacing that lost production, whether it as beans or meal.
The Trade War directly impinged upon canola too. China imposed a 75.8% tariff on imports of Canadian canola last week. (No, we don’t ‘get’ the .8 either.) The move is part of a broader trade dispute between the two nations. China already has existing tariffs on Canada’s canola meal and oil. China’s importers will thus be looking elsewhere for canola. Serendipitously, Australia’s canola seems on track to regain access to China. Thus, Australian (GM) canola will probably be able to make up some of the gap in China’s canola demand. An example of Australia gaining from Trade War diversion.
The Trade War continues to create all sorts of other distortions. China’s very large soybean imports from Brazil are being crushed well ahead of demand. That crushing has generated surplus soyoil in China. Some of that surplus was recently sold to India. That extra soyoil was one reason why India has now imported less palm and sunflower oil. And that now has the palm oil market worried about exports from Malaysia and Indonesia. All of which is very interesting if you are a supply-chain ‘tragic’, but for most it is more ‘one damned thing after another’! The serious impact, though, is that these distortions are efficiency losses.
Markets
Soybean position data showed plenty of movement last week. The signs that investors were unwinding long oil share positions accelerated. A crowded trade with little upside is a dangerous place. No doubt the USDA’s lower US soybean crop estimates were a catalyst. Investors traded very large volumes to reduce their positions across the soy complex (short beans, short meal, long oil). That trading likely continued for the balance of the week. The next report will show how far the oil share positions have retreated.
The View
The week rejigged oilseed pricing: US soybean prices jumped and canola prices slumped. The soybean (and product) moves probably have some way to run. Investors’ positions likely remain larger than they would like. Clearing those positions means that US soybeans can rally another 25US¢ but would likely not hold those gains. What that means for soybean prices elsewhere is unclear – South American prices are already much higher. Nor for oilseed prices more generally. For canola prices, the implications of China closing the door on Canada’s canola are more important. Australian canola prices are likely higher. We think it best not to be too ambitious on the extent and duration of any price gains. Substitute products can replace canola’s meal and oil products.
