Futures rally short-lived

However, that masks the daily moves which firstly saw a modest price decline early last week, with a sharp rally mid-week to over 550 USc/bu on both the September and December contracts. Half those gains were given up over Thursday and Friday nights last week, to leave prices close to unchanged from the previous week.

It is positive that the initial price rally has been retained. It is not so positive that the mid-week price surge was not built on, but that may be a temporary setback.

Over the next three to four weeks, weather will drive US corn and soybean futures, with critical pollination now in full swing for corn, and later on, soybeans will enter their critical pod set phase. There may be a spillover to wheat, particularly from corn, but fundamentally wheat is more likely to find its own direction.

The price spike mid-week last week seemed to be driven by prices paid by Egypt for Russian wheat. Newswires were quoting prices some $US8 a tonne higher than what they had paid just a week earlier. The market took this to indicate that global wheat prices were firming. It also triggered buying in the futures market as funds scrambled to unwind short (sold) positions.

Fundamentally we are also still getting support from concerns that the global wheat crop is contracting. The latest concern is for dry weather in fringe areas of the Russian spring wheat crop.

Any decline in spring wheat yields in any of the major northern hemisphere will add to the shrinking crop being available from major exporters over the next 12 months.

Meanwhile Australian wheat prices are adjusting to the moves in US futures. Over the past week we have seen further declines in prices in NSW and Victoria, and small gains in the major export zones of SA and WA.

The end result is that basis levels in the Newcastle and Port Kembla zones are fast approaching export parity levels, leaving their drought premiums well behind us. At the same time basis levels in SA and WA have improved a little, to also be close to export parity rather than at a discount as has been the case for most of this year.

We are also seeing that the spread between Kwinana and Port Adelaide has returned to normal. The end conclusion is that our new season market has put the east coast drought behind us, and all port zones are now basically aligned with global markets.