The day ahead

Weather – Concerning to say the least. Rainfall deficits in Argy are a problem. The market is all too aware that South American weather can turn around quickly so it feels like risk premium is lagging the actual situation.

Markets –  Don’t call it a comeback. Wheat shook off yesterday’s down day – feels like that was going happen. Veg oil reacted to Biden’s announcement that imported used cooking oil will be banned as a feedstock for biofuel. Energy reacted to increased sanctions on Russia.

Australian day ahead – Export-parity-arama. Paper margins are open everywhere, but export business is like pulling teeth. AUD remaining under the 0.6200 level and ocean freight weakness is trying to get things going, it is just painfully slow. A US futures rally may change the situation.

Offshore

Trump watch – Talk that Donald Trump’s incoming economic team will be looking to ramp up tariffs gradually to avoid a spike in inflation were circulating yesterday. This comes as the S&P bleeds, driven lower by fears that the Fed will be forced to increase rates in response to Trump-led inflation. 

The European diesel markets rallied last night, reacting to Washington slapping its most aggressive sanctions on Russian oil to date. Russia is a major diesel exporter so any sanction-led tightness would widen refining margins globally.  

Any concerns about global wheat balances are not shared by the hedge funds it seems. The short position in SRW increased by a few thousand contracts while HRS moved to the shortest seasonal level in recent history.  The funds did trim their short bet in Matif however, where both fresh longs were acquired and shorts were reduced which, structurally, were a reversal of the previous positioning. 

Egypts wheat imports rose by 31.4pc year-on-year to reach 14.2 million tonnes, the highest in a decade. Corn touched 7-month highs overnight post the USDA report as the tightness in both the US and international balance sheet starts to bite. Argy weather is now the key for any further upside but, from a US perspective, corn is trading at a premium to HRW wheat and is losing feed demand.  

Palmoil continued its bounce on a combination of soybean support and tightening Malaysian palm inventories. 

Brazilian soybean harvest is kicking off, albeit lagging the pace of last year. First crop corn is 1.3pc harvested. Consultant SAFRAS indicated yield potential in Mato Grosso was excellent. 

Australia

WA canola bids rose another $20 yesterday, reaching around $900 FIS. Cereals in WA were slightly higher, with wheat around $375 and barley at $325.  

In the east of the country, canola made similar gains, reaching around $822, with the spread to GM around $113. Eastern cereals were largely unchanged, with wheat bids around $345 and barley at $310.  

Darling Downs delivered markets are trading around $314 for barley and $330 for wheat, with sorghum at $320 for Mar-Apr delivery. Grower selling remains thin at these levels.  

SA delivered end-user markets continue to offer a good premium over track markets, as consumers try to attract tonnage in a year with limited local volume. Murray Bridge wheat is bid around $360, with Wasleys at $365. Delivered barley into the Murraylands and Mid North is trading around $320.

CME Chicago wheat contract expressed in Australian dollars per tonne. Chart on the left is the nearby and forward months. Chart on right is movement in the Dec25 contract from mid-October last year to last week. Click image to expand view.