Just when it looked as though the June low might have been in place, a modest attempt at a price rally failed, and Chicago Board of Trade wheat futures remained in the downward price trend that has been in place since May 7. In doing so the market closed last Friday night at a new low for June, lower than the May low, and back to price levels last seen in mid-April.
This is a familiar seasonal price pattern, where the market peaks during the United States growing season, before setting the first seasonal low in May, repeated with a second low in June at around, or below, the May low.
The highs seen in April and May this year were typical growing season weather driven price moves. This year's rally was strong, adding 200 US cents a bushel to price levels from 12 months ago. This price surge was driven by potential production issues on a wide front, from drought and freeze conditions in the US, drought in Canada, freeze conditions in Europe and a dry start to spring cropping in the Black Sea after a round of freeze conditions on winter crops.
A market driven higher by weather premiums rarely holds. Every time it rains somewhere it takes pressure off the rally, and eventually the factors driving the higher prices are seen as being fully priced into the market.
We also see speculative funds pile in and drive rallies higher than really needed. We then get a round of selling as profits are locked in, and positions squared at the end of the month.
Eventually that selling pressure delivers us our first low for the mid-year period. Then, as the selling slows, we get the "excuse" for a modest price recovery. If the weather factors are no stronger, or have reduced, that next rally falls short of the growing season rally. That is exactly what we have seen this year.
By late June harvest pressure is hitting the US market, and generally the growing season for the allied corn crop is well advanced. That gives us our second dip in the market.
From here we would expect a lift in the market in early July, even if just because the market has sold off for long enough for the time being. However, it is unlikely we will set a new high for the year. We are getting too far into the northern hemisphere season, with harvest getting under way in the Black Sea and Europe as well as in the US.
As such we have probably seen the best prices for the 2021/22 season, possibly until next year, when the next round of weather issues will bring risk premiums back to the global wheat market.
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