Key crops on the move amid rising weather concerns Key crops on the move amid rising weather concerns Key crops on the move amid rising weather concerns

Key crops on the move amid rising weather concerns

Ole Hansen

Head of Commodity Strategy

Summary:  The grain and soybean sectors have started June with strong gains, led by growing concerns that a current dry spell across Northern Europe, the Black Sea region, and parts of the US may negatively impact this year's crop production. Still down by more than 20% on the year, wheat has led from the front with Paris and Chicago wheat both jumping by around 6% during the past six trading sessions.


Today's Saxo Market Call podcast


After weeks and in some cases months of price weakness, the grain and soybean sectors have started June with strong gains, led by growing concerns that a current dry spell across Northern Europe, the Black Sea region, and parts of the US may negatively impact this year's crop production. Still down by more than 20% on the year, wheat has led from the front with Paris and Chicago wheat both jumping by around 6% during the past six trading sessions. 

Lack of rain is also hurting spring wheat in Russia, the world’s top exporter following last year’s bumper harvest, while planting of winter wheat in Argentina is facing some challenges. In addition, the fighting between Russia and Ukraine has led to the destruction of a giant dam raising fresh fears about Black Sea supplies from the war-torn area. 

Meanwhile in the US, the world’s biggest corn grower has seen key areas getting worryingly dry. US corn rated in good to excellent conditions dropped to 64% as of last Sunday from 69% a week earlier. Number two growing state Illinois saw a 19-point drop while surrounding states in the eastern belt also saw declines following a very dry period.

Asia looks set to be in for some punishingly hot weather in the coming months if forecasts for a returning El Ninõ prove to be correct. The anticipation of this weather phenomenon starting to be felt from around July has already seen the Australian government cut its wheat production forecast for the coming season by about a third. Hot and dry weather across Asia has already up until recently been giving sugar and Robusta coffee a boost while adverse weather in Florida has seen the price of frozen orange juice concentrate hit a record high amid outlook for the smallest crop in 60 years.

Overall, these across-the-world developments highlight the continued risk of changing weather conditions leading to much more volatility growing conditions. While there is still time left to correct the current dry weather impact, the window is closing with heavy rain needed within the coming weeks in order to avoid further price supportive downgrades to this year’s crop production.  

On Friday, the US Department of Agriculture will publish its monthly World Agricultural Supply and Demand estimates (WASDE) and the market will be looking out for any revision to US production, ending stocks as well production estimates from South America. Analysts see US corn ending stocks a little higher to 2.25 billion bushels from 2.22 billion last month while the US wheat production is expected to show a small upgrade to 1.67 billion bushels from 1.66 in May. South American data will continue to focus on the hot weather damage to corn and soybeans production in Argentina with surveys pointing to further downgrades, in corn by 3.8% compared with May while soybeans is seen 8.5% lower. 

Money managers which include leveraged traders such as hedge funds and trend-following CTA’s remain key actors in the grain market, and on a weekly basis the US CFTC through its Commitment of Traders Report give insight to the positioning among this group of traders. Instead of causing them, this group tend to anticipate, accelerate and amplify price changes that has been set in motion by fundamentals. Being followers of momentum, this strategy more often than not sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market. 

The latest COT report covering the week to May 30 saw major short covering in corn, and after recently hitting a 118,000-contract short, the biggest since August 2020, it was reduced to 51,000 contracts during the latest reporting week. A net short has been held in CBOT wheat since last July, and last week it reached a five-year high 127,000 contracts, an elevated exposure that was only partly offset by a 10,000-contract net long in the Kansas HRW wheat contract. Soybeans meanwhile has seen its position being cut to neutral for the first time in three years amid exporters struggling to compete with those from South American.

Overall, the net position across the three major crops was a net short of 178,000 contracts, some 627,000 contracts below the level seen this time last year, and 329,000 below the five-year average for this time of year. Developments which highlight the potential upside risk to positioning should the technical and/or fundamental outlook turn more price supportive.

The UCITS eligible WisdomTree Grains Exchange-traded commodity (ETC) tracks the Bloomberg Grains Index with the exposure spread across soybeans (36.3%), corn (35.4%), CBT wheat (16.3%) and KCB wheat (12%). The ETC recently hit a 14-month low and in the process, it corrected close to 50% of the 175% rally seen between August 2020 and last year’s panic peak on March 4 which followed the Russian invasion of Ukraine. 
Source: Saxo

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.