Agricultural commodity markets' sensitivity to adverse weather news is expected to remain acute

Weather is currently the focal point for agricultural commodity markets, supporting prices and increasing volatility. The tight supply of many products requires favourable conditions for production to replenish stocks and meet growing demand, but in many producing regions adverse weather conditions are threatening output potential, and markets are reacting by pricing in production risks.

Hot and dry conditions in the US are imperilling the corn, wheat, soybean, and cotton crops, and the Brazilian sugar crop has been revised lower due to climatic conditions. Negative weather impacts are the principal factor in the current sugar price rally, and have helped grain prices rebound quickly from the June sell-off.

Inventory levels in many agricultural commodities are at historical lows which will likely cause price reactions to further deterioration in the weather to be significant and highly volatile. Early indications of bad weather will likely be reflected quickly in the prices of commodities.