A change of trend is possible, but not certain yet…
We wrote it last week: markets are at a trigger point. New crop risks are slowly taking the lead on heavy old crop fundamentals. It is not a coincidence that prices are rebounding now, just before spring planting. The Market is trying to limit the acreage drop as weather risks are already present.
History told us how fast things can change, notably in 2010 and 2020 when prices recovered rapidly from extremely low prices. At that time, it came from a combination of lower acreage, adverse weather, and massive funds short covering…
At time of writing, we see a lot of similarities. Most of the main Northern Hemisphere production areas are set to decrease by roughly 5 to 7%. Most of these areas are also facing relatively adverse weather conditions. Funds are massively short.
However, it is clearly too soon to talk about a change of trend. For now, markets are only pricing risks. The change of trend will only occur if/when such risks materialize. Therefore, prices will very much rely on spring weather conditions.
All in all, there is a positive combination of factors for prices to rebound. Supplies are at risk, demand should improve and geopolitical risks are there, like a mine, ready to explode.
However, we shall not forget that old crop ending stocks are very comfortable and that Russia is still set to dominate the wheat market in 2024/25 with a possible 93MT production. In addition Ukraine, despite a lower grain production potential, will retain full access to EU markets. A price pull back, after a potential peak is thus also possible.
Thus the coming 2 months are crucial. Markets will watch for US planting intentions (28th of March), Brazilian final production figures, and weather conditons in the N. Hemisphere. On the demand side, Chinese demand will also be scrutinized.
Buyers should be extra careful. Prices have reached very low levels if we consider costs of production as a benchmark. Feed margins are globally decent. They should cover their exposure and protect their margins.
Interesting time ahead. Let’s be ready for more volatile markets, which is always a positive for pro-active farmers!
Farmers will need to adapt their strategies to this uncertainty. Shall we sell now? Our approach will be to sell, step by step in a rising market. When shall we start to sell? Is it a short-term rebound or a long-term change of term? We will cover all market influencers in our next webinar on the 2nd of April 2024 from 9 till 10.30 am. Taking timely and informed decisions will be key for your 2024 farm profitability.
Graindex clients are all invited. To register please follow this link or register via our website: www.odaconnect.co.uk
Meanwhile, we wish you a good drilling season in a complex environment.
Sebastien Mallet / ODA UK - CEO
sebastien.mallet@oda-agri.com
Main Office: +44 1223 894 791
Mobile: +33 6 82 83 71 87