Global wheat waves short squeezes and trade teases
Wheat prices rose slightly as funds reduced short positions amid weather concerns in China and Northern Europe. Drought in China’s Henan province may cut yields, potentially making China an importer again. SovEcon raised Russia’s forecast to 81 MMT, pending critical weather. The U.S. passed Trump’s agriculture-friendly bill, boosting industry optimism despite limited immediate market reaction.
As always, the wheat market is treading a fine line between supply-driven fundamentals and technical signals that drive the algorithms used by fund managers. This week, concerns over production in a few areas – namely Northern Europe and China – sparked a moderate clearing of some of the short (sold) positions held by the funds. Arguably, the collective sold positions had become a little heavy, so a correction was due.
Hot and dry conditions prevailed across much of the major Chinese wheat areas in the past week. This has driven the news cycles recently as doubts were raised over China’s ability to reach the previously forecast of 140 mmt. Much of the Henan province (China’s #1 producing area) has access to irrigation, which should have been able to offset the drought conditions, assuming reserve water is adequate. The crop will be approaching grain fill/hardening, so it is considered unlikely that further deterioration will occur. The final production will be closely watched. Production around 130- 135 mmt will likely determine if China returns to the importer space, which will ultimately play a big role in influencing whether the managed money remains heavily short.
SovEcon increased Russian wheat production by 1 mmt to 81 mmt. This is still below last year and below other analysts. The revised forecast also came with a warning that the next couple of weeks will be critical in realising the final yield. While the past month has been quite good for rains, the next fortnight appears dry at a time when the crop is reaching peak moisture use.
Last night, the US House of Representatives narrowly passed (by 215 to 214) Trump’s ‘Big, Beautiful Bill’. From an agricultural perspective, it has been met with cautious optimism by US farmers and farming groups. Several tax provisions as well as incentives for US-based energy production were introduced, paving the way for renewed investment and consumer confidence. It also cleared feedstocks from Canada and Mexico to be used in the manufacture of biodiesel and renewable diesel. It is possibly surprising that soybeans, corn, and canola did not react positively in the bill passing; however, much of the strength we have seen recently came on the ‘rumour’ that the feedstock issues would be resolved .
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Source : Mecardo
