The May price spike for Chicago Board of Trade wheat futures continued to unwind last week, with end of week prices below the previous price peaks set in January and February.
Based on closing values for the December contract, prices are down A$34.84 per tonne from the peak value of A$358.47, set overnight on May 9.
That was around the timing of the peak in our forward market as well, when prices hit $325 per tonne delivered port outside of Western Australia.
Prices are down $20 per tonne since then, to around $305 per tonne.
Moisture levels are said to be improving across Canada, and in northern parts of the US where spring wheat is grown.
However, growth is still being limited by cold conditions in North America, and despite reports that moisture levels have improved in the US, drought conditions have continued to expand in some key US spring wheat growing states.
Further south in the US, very strong yield potential was reported from the annual Kansas Crop Tour after recent good rainfall events.
All of these factors have weighed on US futures prices and have been behind the sell-off that began after the market peaked on May 7.
It appears to be a normal growing season sell-off, with late May being the typical timing of the first of the mid-year price lows.
In most years where there are weather concerns and risk premiums built into prices, it eventually does improve (i.e. rain, even in drought years), and that becomes the point for the market to pull back and take stock.
From here the market will respond to whether the improvements in the growing season in key US and Canadian regions persist, or whether dry patterns return and fire up a new round of risk premiums being built into prices.
Most often we would expect a rebound in values as early harvest gets underway in June, with the second phase of the traditional mid-year price slump emerging in late June.
The thing to watch for now is whether any price recovery in June can push the market back to, or above, the May highs.
If we do see that, it will become much more supportive for high wheat prices to persist later into 2021.
It will also mean that we have not seen the top of the market, with that more likely to occur in July or August.
If the June recovery fails to make new ground it is likely that the May price peak will be the high for the year, and we will settle into a lower price band leading into our own harvest period, with the best prices for 2021/22 having been in the forward market.
