Grains Heading Higher Again
Grain prices broke higher in recent trading led by wheat and the short-term outlook looks positive. Gains followed Vladimir Putin’s announcement that Russia will extend its ban on grain exports until late 2011. However, this development does not fundamentally alter my key views regarding the complex, namely:
The short-term outlook for grains is fairly bullish and wheat looks strong. Wheat should continue to dictate sentiment towards the wider grains complex in the coming weeks. Government export policy will be the key dynamic in this respect and prices should remain extremely sensitive to further statements regarding Russia’s ban.
However, my colleagues at Business Monitor do not foresee a return to the record grain prices seen in 2007 and 2008. Elevated stocks mean that the market should remain adequately supplied in the coming months, despite Russian export bans. As a result, I see significant further gains above current levels as unsustainable in the medium term. This view is bolstered by the fact that net speculative positions are verging on their highest level since 1997. Given how far net speculative positions have climbed in a matter of weeks, further significant gains could be hard to sustain.
While wheat has continued to grab the headlines, I continue to prefer corn on a medium-term basis. Corn prices traditionally come under pressure around this time of year as the US harvest gets underway. While prices look a little overstretched in the short term, recent trading has bolstered bullish medium-term prospects. Indeed, the technical picture has firmed markedly in recent weeks as prices have decisively broken out of their multi-month downtrend. Corn should benefit from a supportive set of underlying fundamentals in the coming months. The market should remain relatively tight when compared to soybean or even wheat. As such, my colleagues at Business Monitor expect corn to outperform other grains over the coming months and anticipate a further narrowing of the premium at which wheat is trading over corn. Currently at USc259/bushel, the spread of front-month wheat over corn remains at a historically elevated level.