Market peak likely behind us

When the invasion was first confirmed, wheat futures rallied sharply. This was just before the end of month trade for February, so it was no surprise to see prices pull back very quickly with end of month positioning

Once we got into March it was expected that the market would rally to a new high. As time progressed it was obvious that the market would test all the old records, and that is how it has panned out with prices in both US$ and A$ making new records during Tuesday last week.

A sharp pull back from extreme prices is normal. So, after a 41.5 per cent lift in prices in the first full week of post invasion trading, we have now seen a weekly decline of 8.5pc. However, that does hide a modest rally for the end of last week as the market began to stabilise.

The initial shock of a disrupted shipping program for the Black Sea saw a degree of panic, as importers expecting shipments worked to find alternative supplies. Shorts in the futures market came up against limit moves imposed by Chicago Board of Trade, so it was only when the limits were expanded enough that the market was able to peak, with those needing to exit positions being able to do so.

The market peaked on Tuesday last week, at the open of the market. The trading range was then impressive, with the market falling from an all time high of 1363.5 US cents a bushel, to a low of 1164 USc/bu within the day. Then the closing price was 1286.5 USc/bu.

That is extreme volatility, but it did allow the market to trade almost normally for a couple of days into the end of the week. The trading range for the week was an impressive 320 USc/bu.

It is now very likely that we have seen the peak in the market. It looks as though some wheat shipments will move out of Russia and Ukraine to Egypt in the near term. Importers have scaled back their short term purchasing having secured alternative supplies that will see them through until later in 2022 when combined with this year's domestic production.

The focus will now turn to the new northern hemisphere crop. The December contract is the one most relevant to Australia, and it closed the week at 1014 USc/bu, down just 61 from the highest price seen during the week.

December futures closed last week at $A511.16 a tonne, making it the third daily close above $A500/t. December futures remain above their previous A$ record high of $A494.11/t, set in March 2008.