Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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Wheat rises on European crop worries
Ole Hansen
Head of Commodity Strategy
Key points
- Wheat futures in Chicago and Paris are showing signs of recovering after hitting four-year lows last month
- Supported by the outlook for a poor harvest in Western Europe, partly offset by cheap supplies from Russia
- A record tender from Egypt, Ukraine export cap and strong US sales also receiving some attention
Wheat futures in Chicago and Paris are showing signs of recovery after recently hitting four-year lows, supported by the outlook for a poor harvest in Western Europe, particularly in France, the EU's largest producer. Heavy rainfall in late 2023 disrupted winter wheat sowing, leading to poor crop establishment, increased diseases, and lower overall quality. Last month, the French agriculture ministry sharply reduced its 2024 soft wheat output estimate, now expected to be 25% below last year's, marking one of the worst harvests in 40 years. Southeastern Europe also faced extreme heat, impacting spring crops due to drought.
Supporting the recent recovery are dry weather concerns in the US and an announcement from Ukraine's agriculture ministry, limiting the country’s 2024-25 wheat exports to 16.2 million tons. US wheat exports have also surpassed last year's pace. On the demand side, Egypt, one of the world's largest wheat buyers, issued its biggest-ever wheat tender last month, nearly 20 times its usual size, following President Abdel Fattah al-Sisi’s decision, driven by food security concerns.
Each month, the US Department of Agriculture (USDA) releases its forecast for wheat carryover stocks. In August, the USDA projected world stocks at the end of the 2024/25 marketing year to reach 257 million tons, 9 million tons below the previous year and 26 million tons under the five-year average. US ending stocks were forecast at 828 million bushels, slightly above the five-year average of 758 million. The USDA’s next update is due on September 12.
Ample cheap supply of wheat from Russia, plentiful U.S. production and expectations of large harvests in Canada and Australia may counter the risk of a strong rebound in prices. However, large bets on lower wheat prices by speculators in the Chicago market has for now left the market vulnerable to a short covering.
Recent commodity articles:
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
30 Aug 2024: Commodities sector eyes fourth weekly gain amid softer dollar and Fed expectations
27 Aug 2024: Month-long sugar slide pauses amid concerns of Brazil's supply
27 Aug 2024: Libya supply disruptions propel crude prices higher
26 Aug 2024: COT: Funds boost metals investment as dollar long positions halve amid weakness
23 Aug 2024: Commodities Weekly: Metal strength counterbalancing energy and grains
22 Aug 2024: Persistent supply contraints keep cocoa prices elevated
21 Aug 2024: Weak demand focus steers crude towards key support
19 Aug 2024: Resilient gold bulls drive price to fresh record above USD 2500
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16 Aug 2024: Commodities weekly: Gold strong as China weakness drags on other markets
9 Aug 2024: Commodities weekly: Calm returns to markets, including raw materials
8 Aug 2024: Sentiment-driven crude sell-off eases, allowing traders to focus on supply risks
7 Aug 2024: Limited short-selling interest observed during copper's recent aggressive correction
6 Aug 2024: Video: What factors are fueling the current market turmoil and gold's response
5 Aug 2024: COT: Broad commodities sell-off gains momentum; Forex traders seek JPY and CHF
5 Aug 2024: Commodities: Position reduction in focus as volatility spikes
2 Aug 2024: Widespread commodities decline in July, with gold as the notable exception
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