Futures market prices spike

For wheat, nearby futures prices peaked at just over 715 US cents a bushel on Friday night last week. That puts us within range of the highest prices seen since May 2014, when nearby futures peaked around 742 USc/bu.

In $A terms, December futures, which drives our new season pricing, hit $A339.64 a tonne. Nearby futures hit $A338.66. Apart from eight days last year during the initial Covid-19 scare, this is the highest $A value for nearby futures since early 2008.

It is classic timing for a northern hemisphere weather driven market. Spring crops are being planted in North America, and winter wheat crops are entering full growth phase across the US, Europe and the Black Sea. The end of April has been the timing for weather spikes in the past, but it has not been as strong as this since 2014.

We now face the question whether this current price spike will last. One of the issues is that prices get driven higher by speculative funds piling in at the same time. The move to the upside can become exaggerated and get ahead of the fundamentals. With lots of bought positions in place, a price reversal can be very quick. We got a little taste on Friday night when some fund selling before the weekend prevented the market from adding to the gains of Thursday night.

So, what conspired to trigger the sharp upward price moves of last week? Cold weather in US Hard Red Winter wheat areas, and cold and dry conditions in US spring wheat areas and up into Canada. It has also been cold in Europe, and reports emerged of winter wheat crops in Russian needing to be resown as winterkill damage becomes obvious. Spring wheat crops in the Black Sea are lower yielding. We are seeing similar strong price rallies in corn and soybeans, and that has also supported the rally in wheat futures.

But, high prices fix high prices. The market signal being sent to farmers planting spring crops is to persevere, and get acres in, even if the optimal planting period passes. While crops planted late may not yield as much and are vulnerable to hot weather at critical flowering times, the market is working hard to at least prevent loss of total crop acreage.

As we move through this weather induced price rally, the market will continually make judgements on production potential, until crop yields become more secure.