Wet weather has continued to hit the Australian grain harvest, with hail and heavy rain in parts of Western Australia, South Australia, most of Victoria, and across New South Wales. In the north of New South Wales, the ongoing rains will continue to bolster the outlook for summer crops, but elsewhere it is damaging ripe crops and delaying harvest.
The forecasts at the start of this week indicated some further rainfall that would mainly impact Eyre Peninsula in South Australia, and central west regions in New South Wales
We are getting to the point where quality will become an issue. The supply of feed grains for eastern states markets is not at risk, but any downgrading will tighten milling wheat stocks, and higher protein wheat supplies.
In global markets a firming cash market in the US provided some support for futures into the end of last week, but global prices continue to be under pressure. The latest price for Russian wheat into the Middle East was a little lower than the previous sale.
It has also been noted that Russia is offering wheat well beyond their normal shipping window for this time of year. Normally shipments slow as more ports become closed or restricted, by winter weather conditions. Recent milder weather conditions are allowing more grain to be moved.
Russia is also pitching for sales to Brazil, having established a couple of years ago that they can supply high protein wheat to that market. Brazil is normally supplied by the US if Argentine supplies fall short.
With the wheat market probably in a neutral to bearish position, we are seeing a few more projections for the 2018 season. Planted acres in the US are expected to fall again, with one analyst predicting a 919,000 acre drop in the US winter wheat crop, but they expect to see a rebound in spring wheat acres after last year’s drought affected crop. That would leave the US crop just 27,000 acres down.
There is also expected to be a decline in the area planted to wheat in the EU in 2018. This is a response to weak prices and overly wet weather which has slowed planting in central Europe. Soft wheat sowings are projected to be down by 300,000ha.
While farmers in the US, Canada and the EU may be responding to lower wheat prices and reducing acreages, we are probably not going to see that happen in the Black Sea countries. We will be relying on less than ideal growing conditions to impact the size of the Russian and Ukraine crops.
All things being equal we would expect a drop in the global wheat crop in 2018. Even a return to normal seasonal conditions should see the Black Sea crop pull back, while reduced acreages planted elsewhere should also work to keep production increases capped.
What we don’t know is whether the market will plunge lower in the short term, undermining the price base for our current harvest period.
At this stage wheat futures seem to be in a holding pattern, trading most of the time between 420 and 430 USc/bu on the December contract. However, we are about to roll over to the March contract and it is trading in a 435 to 450 USc/bu range. That will represent a lift in spot prices that the market might not be quite ready for.
