Monday Market Briefing - 9th May 2022

With the events in Ukraine curbing grain availability, more than ever the spring planting window in the US continues to be a vital area for cereal production for the coming season. Economics favour corn planting over soybeans, but heavy rainfall across the Midwest (including snow) coupled with lower-than-normal temperatures have prevented many growers from starting. Corn planting is now at the slowest pace since 2013 and with more rain forecast, growers will consider switching to soybeans, or settle for June planted corn with lower yield potential.

While it’s wet in the US, European weather remains fairly dry including an extended dry spell in the UK.  Winter crops generally have dense canopies with extensive root structures and have huge yield potential for harvest. Spring crops could all do with some rain, but some areas have been fortunate with localised storms bringing some welcome relief. Temperatures due to increase next week across the South to 20-25 C.

While the crop fundamentals remain largely supportive, it’s important to understand where any potential downside could appear.  China is struggling to contain the latest outbreak of Covid-19, and with a draconian, zero-tolerance policy for workers we are seeing huge delays on vessel traffic in-and-out of Chinese ports. These delays in grain imports into China ultimately lead to lower overall consumption, making existing grain stocks in USA and SoAm less tight than previously thought.

The other area where we could expect a sell-off is within the spec community. Poor returns from equities have moved many hedge funds into trading commodities, including the extremely volatile grains sector.  This has pushed long speculative positions of the 7 main grain futures contracts to an all-time high of +850,000 contracts.  If the markets fail to continue higher, we could see a reduction of these long positions as funds become heavy sellers.

Have a good week.