Daily closing values of Chicago Board of Trade futures have lost 27.75 US cents a bushel over six trading sessions, but we have also seen the Australian dollar shed close to US1.5c over the same period. That has limited the decline in the $A value of CBOT futures to $A8.42 a tonne, keeping the March contract above $A300/t.
Without the lower Australian dollar against the US dollar, the decline in $A futures values would have been $A14.90/t, and the March contract would now be trading under $A300/t.
The Australian dollar is now at its lowest level against the US dollar since March 2009. As a result, we are getting a lot of support given to our underlying grain prices, which is keeping the $A value of CBOT futures near decade highs.
The drop in the Australian dollar is being driven by a lift in the US dollar. That means wheat prices in other currencies are also holding up. We saw that last week where sales to Egypt were reported to have been $US5/t lower than the previous tender, but in euro terms and in terms of the cost to the Egyptians in their own currency, prices were probably not down by that much.
There are multiple reasons for wheat prices to have topped and now be falling. Firstly, it was inevitable, particularly as wheat closed in on decade-old price levels in non US dollar terms. The market was high for many importers and non US exporters.
Secondly, we were always going to run out of drivers to keep the market rising at this time of year. To get where we did, is probably a bonus anyway. We are also seeing a mild winter at the moment in Europe and the Black Sea producing regions, and projections for a larger crop in Russia this year.
However, a big factor has to be the impact on a range of markets from the coronavirus outbreak in China and its spread since then. Some are calling this a black swan event. A black swan event is one that comes as a surprise and has a major impact on markets because of the uncertainty generated.
The January price peak has been an opportunity to sell old season wheat and start sales of new season wheat. It has probably been an unexpected bonus.
The impact of the coronavirus will settle down, and the uncertainty over seasonal growing conditions in the northern hemisphere will build as it normally does as the year unfolds. It remains to be seen whether we will revisit the price levels seen a week or so ago, but it would not be surprising if we eventually do.
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