A Tuesday morning run up in the grain markets caught many market watchers by surprise. What’s at play so early in the growing season?

Jon Driedger with Leftfield Commodity Research says that, yes, this really does seem to be a weather related rally for the most part, and that’s a bit of a surprise.

Coming out of a long weekend, Driedger says there perhaps was some pent up energy regarding concern over tight old crop stocks and impending harvests, and some weather news of frost and a dry forecast seems to have pushed markets higher, even though weather rallies are usually more of an early July thing.

Nips of frost and extended dryness in the forecast — even though fundamentals are probably the same as a few days ago — means there were some explosive moves to the upside, he says.

For Western Canada, farmers were happy to get some rain, but it wasn’t enough to solve the underlying dryness problem. In the long term, Driedger says the dry conditions are still concerning and one good rain hasn’t changed the total expected production at all.

As for inflation and news of inflation, Driedger says there are likely two factors at play. Grain markets do largely trade on their own fundamentals; however, as groceries, lumber, and oil drive higher, it draws in speculative money to commodities. Plus, there are some fundamentals that tighten as inflation increases, feeding that story.

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