Hacket on weatherJUst as I took HAcket advice to but Nat Gas early, I've taken his advice and bought the ETF" weat."
I'll be back to oil and gas but I move to different sectors of the market as momentum changes in each.
Our weather work, thus far, continues to support drought risk for the central/eastern based Midwest as the -PDO remains as does ENSO neutral favoring the dome of high pressure to form as we get to the back half of May onward.
We would think the grain markets might price in all the bearish news of good planting progress (warmer drier weather on the way heading into late May) and a big Brazil corn crop) by mid-May before transitioning over to the growing season and what should be a quick and sudden transition to a drought like weather pattern.
We believe that 2012 is a very good analog to follow for grain market price action given similar set up with regards to a multiyear period of high prices leading to demand destruction along with bearish sentiment and a very similar sea surface temperature regime that has everyone believing that El Nino weather is all but certain in the US despite the historical statistics suggesting otherwise.
In 2012 April and May were Ideal for the core Grain Belt in Terms of Soil Moisture Then by July it was a 1 in 50 Year Drought for the Central Eastern Grain Belt…Be on Guard
Russia’s historically large crop last year at 105 mmt has caused them to be an aggressive and low-ball seller to the likes of China etc.
In addition, Ukraine wheat that has been unable to leave through the ports has found its way into Europe causing a short-term glut in this region. Too much wheat in the wrong places means very low global references prices that make US prices struggle to adequately compete for export and adds pressure to prices.
With the Russian crop this year likely off by almost 20%, Russia will not have the luxury of selling in the manner they have been over the last 6 months. This along with likely reduced movement of Ukraine grain leaving the ports with Russia likely ending the grain corridor deal means that current depressed prices are likely reaching a max supply crescendo leading into May from which a sizeable rally can be seen.
For now, the wheat complex will likely be dragged down by strong downtrends in corn and soybeans heading into mid-May.
SRW Wheat Net Speculator Shorts As a % of Open Interest Has Reached Historic Low Levels Seen at Major Long-Term Bottoms Over the Last 20 Years-Suggesting a May Low Is Likely Here