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Grain markets defy falling equities to trend higher

by Tim Murray, 13 February 2018

IT’S BEEN a tough and volatile time for stock markets, currencies and many commodity markets in the past week, but US wheat and Chicago Board of Trade (CBOT) corn markets have shrugged it off to finish modestly higher.

When justifying the recent firmness in CBOT wheat, it is hard to single out one individual event or factor ahead of a combination of them, including ongoing dryness on the US Plains, a Black Sea cash market that continues to trend higher, and a technical break-out from the previously bearish trend.

It was all enough for a speculative short position to determine it didn’t want to remain short, particularly before a USDA World Agricultural Supply and Demand Estimates (WASDE) report.

And yet, the February WASDE report failed to provide any surprises. It was less to do with fresh wheat inputs and more to do with developments on South American corn and beans.

The Australian wheat estimates of 21.5 million tonnes (Mt) of production and 16Mt of exports all remained unchanged, and with the exception of some minor provisions, there were no notable changes to the global wheat balance sheet.

The shift to a friendlier sentiment was also boosted in our local markets by a weakening AUD. This contributed to higher values, particularly in export zones, with Port Adelaide APW wheat firming $7 per tonne to close the week at $252/t Port.

The trade appears to be comfortable with the export competitiveness of wheat, given we have a crop size near the USDA’s 21.5Mt.

Barley outperformed wheat, with Adelaide F1 at $246/t Port, up $16 for the week as it also digested the announcement that China has launched an anti-dumping investigation on US sorghum, which competes with Australian barley into Chinese feed markets.

Local and global barley balance sheets are already snug enough, given that feed barley is pricing around milling wheat in an attempt to ration any elastic demand, and without considering additional demand at US sorghum’s expense if duties are imposed.

Even prior to any potential duties, the threat of pending barriers is expected to be enough to stall the exports, if the reaction to similar investigations and subsequent duties applied to US dried distillers’ grain in 2016 is an indicator.

Whether it’s imported barley or Chinese domestic corn that replaces the hole left by US sorghum, or a combination of both, it appears to have been enough for nervous barley shorts to reach for the exit button.

Source: The Nidera article this week was contributed by COFCO International wheat trader, Tim Murray.

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