World Grain Markets at a Critical Point

Last week's shortened trading week saw a significant liquidation of long positions across the commodity complex, and grains were certainly included. In addition to grains, decreases were also seen in energy, metals and softs. By Monday morning, corn, soy and wheat were all up in overnight trading. The market is now at a critical point where traders could decide to liquidate further, or look at the longer term picture and view this as an attractive entry point. The pattern in Brazil has been progressing favorably for soybeans and wheat, but the dryness in Argentina and potential flood related planting delays in the US could counter this and serve as a bullish signal. Here's a quick look at recent weather impacting grains around the world:

ARGENTINA: A light precipitation week in soybean and wheat regions last week. Fields in southeast Cordoba received 30-40 mm, but the rest of the growing region had generally dry conditions with less than 20 mm of rainfall. The ridge which set up towards the beginning of the week blocked most of the moisture from penetrating the region for most of the week. High pressure finally broke down by late Thursday, and this allowed some parts of Cordoba to receive between 14 and 20 mm over two days. The outlook for the current week is for another relatively dry week; 12-15 mm total. Crop Signal: Bullish.

BRAZIL: Brazil fared much better last week as the moisture from the west was able to reach much of the Centre-South; northern Sao Paulo growing regions received between 35 and 50 mm, with higher totals in the north and northwest through the southeastern growing areas in Mato Grosso. A steady rainfall pattern is expected in many soybean areas for the next two weeks; lighter in the south. Crop Signal: Bearish.

UNITED STATES: Major flooding occurred in the central US last week and while the longer range forecast still looks favorable for planting, the wetter conditions through next week will lead to some concern for corn and wheat planting, which starts in large scale by early April. Crop Signal: Bullish

EUROPE: Slightly cool conditions last week; the outlook is for a cooler week this week with evening temperatures below freezing through Wednesday or Thursday. Crop Signal: Bullish.

KAZAKHSTAN: Warm week last week in northern Kazakhstan; another warm and dry week anticipated this week. Crop Signal: Bearish.

INDIA: Light but more widespread rainfall last week in central to southern India. Soil moisture profile still largely deficient for this time of year. Crop Signal: Neutral.

CHINA: Another decrease in % soil moisture in the Yellow River Basin, while a slight increase was evident in the Yangtze basin (vs. the previous week). Many stations across Henan recorded no precipitation last week. Crop Signal: Neutral.

AUSTRALIA: A similar pattern from the previous week with slightly more precipitation in the southeast. Surface soil moisture vs. last year is still behind in New South Wales, but the subsurface profile looks favorable through March 20. Crop Signal: Bearish.

Disclosure: At the time of this writing, the author does not hold any positions in DBC, DBA or MOO.

Comments

[Stephen Fra...:]

i think it's a sign of a bubble whenever people are breaking down ag commodities into 10 geographical regions and reporting weather on a week-by-week semi-superficial basis.

i'm not saying a potential investor should ignore important fundimental data, like, if a major drought is occurring in a major breadbasket. but to me, analysis on this level is a manifestation of mass hysteria, a la housing bubble circa 2006-7 or tech bubble almost ten years ago.

2008 Mar 25 05:30 PM

[John L.:]

Based on the authors analysis of weather patterns, my conclusion is to run right out and do nothing. The weather changes all the time and so does the stock market and both are unpredictable.

2008 Mar 25 09:14 PM

[Michael Fer...:]

You both could not be more incorrect (at the point of being laughable). If you follow grains markets, or any other ag market daily, weather especially during this time of year does in fact drive the market every session. A breakdown of 10 regions is only scratching the surface - thorough analysis looks focuses on a least twice that amount, and usually much more. And while this column might be light (as if should be for this forum), but it is only a snapshot of the type of analysis that nearly all grains traders look at every day. Further, amatuerish statements like 'weather patterns (that affect crop development) are unpredictable' highlight the lack of knowledge about these markets and their drivers.

2008 Mar 25 09:41 PM

[Nick Gogerty:]

the variance in production is normal, the low feedstock in storage is what it is truly disconcerting.

2008 Mar 26 12:59 PM

[Michael Fer...:]

@nick: agreed. but that has already been priced in for a little while now

2008 Mar 26 02:39 PM

[Stefan.Meye...:]

I have about 2500 tonnes of milling/pony oat available in Alberta...also i work out of sydney as a grains analyst.advisor. If you need info on CDN or AUS markets phone me up. or send an email....These markets are over driven by specualtion but the bullish trends are driven by tight supply and heavy demand...teh strike in argentina...the frosts in china....the drought in aus....the tarriffs etc...

2008 Mar 30 11:52 PM