Christmas surprises?
Is volatility finally back? Since harvest, European rapeseed, wheat, and corn markets have been trading in a very narrow and depressing price range. We feel this period could come to an end during the second half of the season. Following the sluggish 2023 context for the demand side, and very decent world supplies, some new or developing elements could well bring unexpected surprises. Let’s review how they could change the current market picture.
On the demand side, China is already surprising the markets with massive purchases, from around the world, of all commodities. Recently, record weekly US soya and wheat sales illustrated the massive Chinese appetite. India could also come as a major surprise in the coming weeks as they are looking seriously at lowering their wheat import duty to allow Russian imports. Such new and unusual demand is necessary for prices to rebound, and it needs to be confirmed in the coming months. A real point to watch, and a possible game changer.
On the supply side, the focus is on Brazilian slow planting. How will soya production be affected? How much second corn will be planted? We have already downgraded our production estimates, but we still consider that their soya production will be decent: between 150 and 155MT, the second highest on record.
However, we seriously question their ability to produce a bumper corn crop. Risks are high and markets will watch timeliness and weather conditions in February 2024 as the Safrinha planting season comes to an end. We shall expect world grain markets to be very sensitive and volatile until then.
On the trade side, we will continue to monitor EU exports. They need to accelerate for our prices to increase. Current surging sea freight costs (+70% in the past week) could also be favourable to our markets as it makes imports much more expensive and therefore our domestic supplies more competitive.
Outside fundamentals are also changeable. Geopolitics, inflation, and interest rates policies could directly impact crude oil, currencies, and trade. The world is clearly unstable, so is weather. We expect rising volatility in a very uncertain context. It creates unpredictable risks, but it will also provide short-term opportunities.
All in all, in a bearish market, there are still real possibilities for a price rebound and a lot of unknowns for the coming new crop. Let’s remain optimistic as some changes could materialise between now and the end of February 2024. So, we hold further for now as we continue to believe grain prices have limited downside potential.
Sebastien Mallet / ODA UK - CEO
sebastien.mallet@oda-agri.com
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