The rally in wheat futures took a breather late last week, after prices moved above 460 USc/bu on the March contract but failed to close above that level for a second day. The market had pulled back 12 USc/bu after two trading sessions by the end of Friday night last week. In A$ terms the decline had been A$5.28 a tonne.
In A$ terms the market was still well above A$200/t, and at the start of this week was sitting A$19/t above the closing low seen on January 17. That continues to show a strong rally from the lows set after the January USDA Report.
The February USDA Report was released last Thursday night, and while the market fell that night, and the next night, the losses have been less significant than the falls triggered in January, when US planted acres were a significant disappointment for the market.
There were really no surprises in the February report, with US ending stock estimates being increased in response to a downgrade to US exports. The pace of exports from the US has not been strong enough to support the USDA projections to date, and the recent rally in wheat prices makes it that much harder for US wheat to compete with cheaper origins, particularly wheat from the Black Sea region.
Global ending stock estimates were also reduced, with an upgrade to consumption estimates based on increased use within China and Indonesia. Indonesia has now emerged as the world’s largest wheat importer, at 12.5 million tonnes, and takes over from Egypt.
Behind the recent gains in US futures have been drought concerns in the US, a weaker US dollar, and buying by funds exiting a large net short (sold) position. A resumption of the rally will be dependent on at least two of those factors continuing. However, the short covering will come to an end at some stage, and higher prices will continue to keep US wheat out of export markets.
Longer term, it will probably need to be a drought driven production issue in the US that will allow US wheat stocks to continue declining at a reasonable pace, and support a sustained lift in US futures prices. We also need Black Sea production to come under pressure and decline.
In Australia, the rally in US futures has been captured in part because of our dollar weakening against the US dollar, and supporting the A$ value of CBOT futures. Compared to a week earlier, our currency is down more than 2 US cents, and the A$ value of US futures is up by just over A$5/t.
Cash prices in Australia have responded by lifting between $2.50 and $8/t. The biggest gains have been in Victorian, South Australian and Western Australian export port zones.
Compared to average APW prices during December, NSW prices are a little mixed, and are overall not showing much in the way of gains. Better gains have been achieved in Victoria and South Australia, where APW cash prices are running about $5/t ahead of the December average, and $10 to $12/t above the lows set in late December and early January.
For growers wanting a little more in the way of increased prices for their stored grain, we need ongoing support from a falling Australian dollar, and a rising CBOT wheat futures market.
