Global Grain Price Recoveries Appears Excessively Bullish vis-à-vis Inventories and Weather Factors

Chicago soft red winter wheat (CBOT: QMW) is surging to a 2-month high as a decline in U.S. winter wheat conditions renewed focus on weather risks to Northern Hemisphere crops. Corn and soybeans also edged up slightly on U.S. spring planting risks. Is this price optimism validated?

To answer this question, let’s turn to the recent USDA view, which lowered its wheat, corn and soybean price forecasts in its April WASDE report. The USDA's April WASDE report maintained higher levels of corn and soybean production in South America, contrary to private analysts' expectations.

Having said that, the bearish trend in corn and soybean prices will likely resume soon, providing potential opportunities to offset long risk positions. Despite the current breakout, wheat prices will likely remain under pressure, even though the global wheat stocks expected to fall to their lowest levels since 2015/2016.

WASDE is apparently hesitant to downgrade its South American corn and soybean production forecasts due to lower production expectations. The published figures reflected annual global consumption of wheat and corn exceeding this year's production, as well as swelling wheat and corn stocks in China. As harvest season approaches, all eyes will certainly be on the weather — as the ultimate price justification factor. If corn, soybean and wheat prices continue to fall into the lows of their 15-year price cycle, hedge funds' large speculative short positions may soon become vulnerable.