Markets at a trigger point?
Nothing has changed fundamentally. This season’s market fundamentals have been bearish with large supplies combined with sluggish consumption in a food inflationary context. However, prices cannot fall, indefinitely, below farmer’s cost of production without impacting world supplies. Prices are therefore rebounding on key support levels for good reasons: risks are ahead of us as we are entering the key season for future world supplies.
In the same way that “trees do not climb to the sky”, there is also a floor to the downside for prices. This floor materializes through costs of production and their impact on planting intentions. At the current low levels, farmers will invest less and lower their acreage. Everywhere we hear about lower areas. In Canada, Brazil, US, Ukraine, France, UK, acreages are going down. That’s the main reason why our markets are so cyclic: low prices lead to lower supplies.
Historically, it can take two seasons for these factors to negatively impact stocks, or only one. It depends mostly on weather.
Indeed, we know that if these lower areas and investments are combined with adverse weather conditions, then the impact on supplies can be exponential. March, April, May, and June are trigger months for winter yields and spring acreages. This is the risk that is starting to be priced. Thus, Spring weather conditions will probably set the trend for the new season.
We will particularly watch for weather conditions in the US (it is hot and dry for now), in the EU (it is too wet in the major production areas) and the Black Sea (Ukraine and Russia potential is very weather dependent). Then, later in the season, the probability is high for La Nina to be back during the S. American new planting season in October 2024. Closer to us, weather will also impact the recently planted corn in Brazil where a dry pattern is currently developing.
On the demand side, the worst is probably behind us. The energy crisis has been solved, inflation will soon be back to normal and interest rates should initiate a pull back in 2024. Feed margins are improving, industry investments are resuming, consumption should rebound.
So, yes, old crop fundamentals are bearish. Yet things can change fast in our markets. We are entering the trigger point and volatility should be very high in the coming months within a context where funds are still holding record short positions.
We are confident that better selling opportunities, being short or long term, will arise before harvest.
However, in a context where Russia could produce another massive wheat crop in 2024 (93MT) and Ukraine imports should continue to flow into the EU, we will not be too greedy. UK farmers should thus be prepared to be reactive to catch short term opportunities. Companies like ODA allow you to take informed sales decisions. In a context of low prices and low profitability, taking the right decisions at the right time is key. If you wish to join, simply contact me on sebastien.mallet@oda-agri.com. It is easy, very affordable and enjoyable.
Meanwhile, we hope you will all be able to enter your fields early enough to optimize your new crop production within very complex weather conditions.
Sebastien Mallet / ODA UK - CEO
sebastien.mallet@oda-agri.com
Main Office: +44 1223 894 791
Mobile: +33 6 82 83 71 87