May Chicago Board of Trade wheat futures rallied an eyewatering 41 per cent for the week last week, to close at 1209 US cents a bushel, the highest daily close since March 2008.
In $A terms the market rallied 37pc to $A602.60. This is likely to be a record $A price level for a nearby CBOT wheat futures contract. The record daily close for a December futures contract was A$494.11 a tonne on March 13, 2008.
For the time being wheat exports from Ukraine look to be all but closed off, with all Ukrainian ports closed (some damaged). Russian ports are open but more and more of the world's grain traders are closing their operations and grain flows are stalling.
The immediate need for wheat to cover cancelled shipments from the Black Sea is pushing demand back to the European Union and the United States. To cover this need, the markets are telling those holding wheat to sell now. If they do not sell now, prices will be much lower later in the year.
We see that in the December futures contract, which closed last week at 980 USc/bu versus the May contract on 1209 USc/bu. Just two weeks ago December was still holding a small premium to May futures in recognition that production needs to increase this year to cover global demand.
However, the market is volatile, and on Friday night last week December futures hit a high of 1040.75 USc/bu (closed at 980 USc/bu), which would have been $A518.74/t.
For now, the demand for wheat is immediate, and until that demand is filled, nearby wheat futures will hold their strength. Whether that allows prices to keep increasing by the daily limit (we had five in a row up to the start of this week), we will have to see, but the market does look poised to take out the all time price high set in March 2008.
There were some developments over the past weekend. Hungary banned the export of wheat. Ukraine banned the export of some agricultural commodities (including meat and livestock) and say that exporters of wheat and sunflower oil need to obtain export licences.
Also of concern is the expectation that spring planting of crops in Ukraine will be sharply curtailed, as fuel is diverted to the military, and as seeds and fertiliser inputs fail to get to where they are needed. This won't impact wheat much but will hit corn.
Ukraine rail is also gearing up to send grain exports via rail into neighbouring countries for shipment to get around the closure of their own ports. We will have to see if that works, and/or works to a level to maintain the flow of Ukrainian wheat into the global market.
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