Wheat futures have pulled back from their highs, down to the base of the trading range seen during the latter part of 2018. A sharp decline coinciding with the end of June is almost normal. What we now await is whether there is enough happening in the global market to fire up a revisit of the mid-year price peak.
However, United States wheat prices have pushed too high relative to global prices. Strong US corn prices have allowed wheat prices to rise and still remain competitive into US feed markets, but that will not help US exports.
To stage another rally, US wheat futures will need help from wheat prices elsewhere. The global market will need to firm to allow US wheat to become competitive again, before regaining some further upside momentum.
Officially global supply and demand estimates for 2019/20 continue to indicate that global wheat production is on the rebound from last year's drought affected result, and that global wheat stocks will recover. None of that is conducive to higher wheat prices, or to even supporting the current level of Chicago Board of Trade wheat futures.
Meanwhile, the edge continues to come off the global crop with the condition of the French wheat crop being cut this week in the wake of their heatwaves, and there have been modest cuts to estimates of the crop in Ukraine and Russia over the past couple of weeks.
This is all positive, particularly from the Black Sea region. The competitiveness of Black Sea wheat into global markets is a thorn in the side for most other exporters, including the EU, North America and even for Australian wheat into Asian markets.
We get our next view of the global balance sheet in this week's monthly United States Department of Agriculture Report. That will give us the USDA's view on how the heat and dryness might have impacted production across Europe and the Black Sea, but it is unlikely to give us a dramatic shift in supply.
Tight US corn supplies will support US wheat futures, but this is only likely to be a bit player against the production and export trends from Russia and Ukraine. Without stemming the flow of wheat into export markets from the Black Sea, it will be hard for global wheat prices (and therefore CBOT futures) to hold near current levels, let alone revisit the recent price spike.
Meanwhile the Australian market will have to decide whether it is remaining in drought or not. If we do remain in drought, new season wheat prices will get a boost from current levels, and may actually rise against falling CBOT futures and global wheat prices.
Year-to-date rainfall records for Australia are not indicating the end of the drought yet.
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