Narrow Price Outlook Could Catch Buyers Off Guard, AiQ Cautions
Falling prices, policy uncertainty, and abundant U.S. crops have pushed many buyers to the sidelines. The shift to hand-to-mouth buying—a strategy where buyers maintain minimal inventory and purchase only what's immediately needed—began following the invasion of Ukraine and has proven advantageous since.
This approach allows buyers to capitalize on anticipated lower prices. Prices for key commodities like wheat, corn, and vegetable oils were slashed by half from their peak levels, driving down inflation worldwide.
AiQ's ranks the midwest as well above normal conditions. This will result in a record yield and further increases ahead (as we predicted).
Despite the dramatic drop, expectations for even cheaper local and international prices persist. Here’s why buyers remain bearish or continue to hold off on significant purchases.
Record USA grain and soybean crops, ample US balance sheets (AiQ Video here).
Policy uncertainty due to US biofuels and EU sustainability initiatives.
Growth concerns and negative outlook in China.
Recency bias: the longer prices and volatility stay low, the more accustomed they become to this environment.
The risks are rapidly shifting. AiQ highlighted similar shifts in the sugar market earlier this spring, and over the last 30 days, some of the largest players in the world have come full circle.
Wilmar was rumored to carry a large short this spring when hot, dry weather was being ignored. It has been hot and dry all year.
Here are the price ranges over the last 12 months
(52-week high ➖ 52-week low) ➗ price a year ago
Corn 29%
Wheat 38%
Soybeans 34%
Soybean Oil 35%
Cotton 41%
Crude 28%
For a company that prides itself on data-driven decision-making, this portion of the analysis may fall short. We encourage you to challenge and scrutinize our estimates. Traders and buyers anticipate prices remaining within historically narrow ranges through mid-2025. Here are the "guesstimates."
Corn (19%) $3.60 - $4.40
Wheat (18%) $5.40 - $6.50
Soybeans (17%) $9.00 - $10.80
Soybean Oil (28%) 38.00 - $50.00
Cotton (21%) 65.00 - 80.00
Crude Oil (20%) $65 - $80
If this isn’t the case, buyers are either bearish or highly complacent. The logic holds because a 10% broader price range would imply recognizing that the risk is disproportionately skewed to higher prices for certain commodities.
So, why aren’t buyers securing Q1 2025 coverage? As mentioned earlier, a mix of factors is keeping them on the sidelines, and thus far, this strategy has paid off.
Why do traders maintain a bearish outlook? The arrival of seasonal rains in South America and managed money buying. Social media is filled with posts touting “seven weeks of hedge fund buying” or “speculators have purchased hundreds of thousands of contracts.”
Good graphic of what happened in recent weeks/months.
Yet few of these posts address what has changed or the underlying risks that will drive the next buying round. Is it risk controls as shorts are stopped out or changing economics as corn, crude oil, and fertilizer prices rise?
Let’s take a look at two commodities: Wheat & Soybean Oil
Below are week 37 and week 41 Global Weather Risk maps. In September, weather risks increased materially for major wheat and palm production regions.
Australia, Canada, and much of Europe were god to neutral. Black Sea planting was not a concern yet.
Australia and Argentina wheat areas have gone over a month without rain. Planting across central Europe/Black Sea is a major risk. Weather outlooks began to improve around October 7.
US and European Policy Risks Keep Buyers on the Defensive
US companies have very little Q1 coverage, even as margins improve.
The answer is a resounding yes. The EU Commission and governing bodies believe in a top-down approach, imposing these rules internally and externally.
Traders are eager to turn bearish after the recent price surge. Palm oil has been expensive compared to soy, holding a premium for the past eight months. However, the key issue lies with the weather in Indonesia. The rains have become a growing concern, with Sumatra and Kalimantan experiencing significantly above-average rainfall over the last six weeks.
Main production areas of Kalimantan look similar.
Recent weather forecasts show improvement. Look for trends to confirm in weeks ahead.
The critical topics to monitor:
Russia/Ukraine/France winter wheat planting
Indonesian rain on the islands of Sumatra and Kalimantan
Argentina and Brazil, as farmers, continue to favor soybean sowing over the less profitable and higher-risk corn.
Clarification about US and European biofuel and deforestation policies
Argentina and Indonesian biofuel mandates in 2025
AiQ’s Free Weekly Global Production Risks newsletter is available here. All of these global weather risks are tracked, and potential production impacts are quantified.
Improving weather conditions might delay a potential global shock, but the next price spike could be even more dramatic. The risks are increasingly skewed to the upside as prices stabilize at lower levels and buyers continue to postpone decisions.
With the U.S. harvest nearing completion and South America's weather market set to kick off by mid-November, buyers have benefited from a hand-to-mouth strategy, purchasing only what’s needed in the short term. But how much longer will this strategy pay off?
AiQ advises that it may be time to prepare for the 2025 price landscape, which will likely be far more volatile than traders and buyers currently anticipate.
