Last year Chicago Board of Trade futures peaked in the first days of August. Year on year nearby futures are down 69 US cents a bushel at the start of the first full week in August. However, with a sharply lower Australian dollar (6 USc lower), the difference in $A terms is only A$12.84 a tonne.
Last year CBOT wheat futures fell sharply from the high set on August 2, but apart from two days in September, nearby futures always closed at or above 500 USc/bu right though until February this year.
This year nearby futures have started this week on 490.75 USc/bu, having traded down to 472.25 USc/bu Thursday night last week.
When we look at December futures year on year the market is 105 USc/bu lower this year. The difference this year seems to be that the spread between September and December futures has already closed up this year, whereas last year the spread on the same day was still close to 25 USc/bu.
Last year the expectation was that Russian exports would decline sharply, opening up the door for strong US exports as early as December. That never eventuated as the Russians kept exporting at a rapid pace, locking both US and EU wheat out of global markets.
This year the Russian crop is bouncing back, and while exports from Russia probably won't match those of last season, the exportable surplus from the EU is up sharply. We don't seem to have the same confidence of a sharp lift in US exports, and so the forward market is more subdued.
The other dynamic at play is Australian basis levels. This year basis levels are $30/t lower in the Newcastle zone, and $48/t lower in SA. That said, basis levels are still very high, and price relativities are set to allow more grain to be railed from SA to inland NSW, as occurred last season.
Year on year Newcastle-based prices are down $64/t, driven by a $57/t drop in US futures, and a $33/t lower basis. To partially offset that we have a lower Australian dollar adding $26/t back on. Port Adelaide prices are down $80/t.
From here the major drivers for our market will be basis and US futures. If the drought gets stronger basis should rise, but given that we have Canadian imports set up to enter the east coast, the need for the excessive basis levels seen last year in October may not be the same.
While CBOT futures may hold above last week's low, it is also hard to see why they will push significantly higher given the global balance sheet for wheat.
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