Commodities market: A quiet summer was forecasted...

The summer months were predicted to be calm, but these days tranquility and certainty are always fleeting.

Let's recap. In mid-June, wheat futures were nearing their 6-month lows on the MATIF market. Harvests were expected to be abundant, and a scenario of decreased consumption (whether due to sanitary concerns or the heat itself) kept buyers calm as they focused on stockpiling the domestic harvest. This harvest, while not as excellent as last year's, was sufficient to justify low prices. Geopolitically, a truce in the Iran conflict lowered oil prices and boosted stock markets. Bearish, or at least non-bullish, factors dominated the news, in a context of abundant supply at the ports. But as always, the calm was short-lived.

An unprecedented heatwave has ravaged Europe, leaving decimated corn and sunflower harvests in its wake. In less than two weeks, the percentage of corn crops rated as good or excellent plummeted from 76% to 58%. The French Ministry of Agriculture estimates the harvest could be reduced by around 30%, although farmers' organizations consider this forecast overly optimistic. If supplies of French-grown corn were already scarce or uncompetitive compared to imports through the ports, they have now virtually disappeared. In fact, some traders are buying back corn and barley.

If offers originating in France were already scarce or unattractive to certain regions compared to port import prices, they have now disappeared entirely; even corn and barley positions are being repurchased. Wheat, being well advanced in its harvest, was not as affected by the heat, and although we might initially feel reassured, the quality of the milling wheat remains to be confirmed (let's not forget that the wheat traded on MATIF is milling wheat, so quality issues in France are usually a significant upward driver). On the other hand, given the succession of alarming news reports, farmers have no incentive to sell their barley or domestic wheat at prices significantly lower than the port price once the harvest is in storage.

The geopolitical premium has risen again this past week following US bombings and Iran's response to its interests in the Gulf region. This has driven up oil prices in the last 48 hours, but above all, it has put shipping companies on high alert, as they are unwilling to risk their vessels passing through the Strait of Hormuz without a premium. And, after all, what would we do if the ship were ours? All of this is once again disrupting the trade of gas, oil, and fertilizers in the region.

For now, amid all these news stories, the market has been "shaken, not stirred," as James Bond would say. Prices have risen from their lows, yes, but it's important to remember that wheat is trading at around €224/t for short-term positions at the ports, and a couple of euros more for futures contracts. Meanwhile, corn is trading at €225/t for short-term positions. Soybeans, at around €350/t, can't really be considered expensive either.

So, despite everything, the climate and geopolitical risk premium could be much higher if the weather market for corn and soybeans in the United States gives us any scares, or if wheat in Russia suffers in these last weeks before the harvest.

Locally, the shortfall is in wheat (buyers need to purchase wheat until the end of the year) and not so much in corn. Statistically speaking, the months when wheat is cheapest (or when the cheapest wheat purchases are made) are August and September, so before another piece of news shakes up the market, we need to be ready for the next buying opportunity.