Last Thursday night Chicago Board of Trade wheat futures jumped a staggering $A42 a tonne on the back of a bullish United States Department of Agriculture report.
The monthly USDA WASDE provided their estimate of the 2022/23 season global crop. The outcome was tighter global and US wheat ending stocks than the market had anticipated.
Whether or not the move in price was warranted is yet to be seen, but it is an indication of the current "jittery" state of the market.
Everyone is nervous over the current uncertainty in the world. Ukraine/Russia conflict, continued issues with global logistics, poor crop conditions in North America, China and parts of Europe.
Adding to the situation is many asset classes are at record highs and surging inflation. Hence money managers are looking where to place their cash and in the past grains have been seen as an inflation hedge. CBOT becomes a tool they use to get that exposure.
The increased money flow into CBOT futures and poor US crop conditions can make CBOT wheat disconnect from what's happening here in Australia.
More fund participation in CBOT wheat can push the price highs higher and lows lower.
Just 29 per cent of the US winter wheat crop was rated good to excellent by the USDA as at May 9. That's the lowest in five years and compares to the five-year average of 51pc.
It has been widely reported that Australian cash prices are at historically low basis levels when compared to what CBOT wheat is indicating it may be worth.
Fund money and US crop conditions can help to explain this and makes CBOT a more difficult tool to use when managing price risk of Australian grains.
In saying that, when we see a move higher in CBOT wheat like we did on Thursday, Australian wheat prices are likely to follow to some extent.
More importantly, when we convert Australian cash prices to an equivalent price delivered to our major importers, we remain well below prices being offered from other major exporters.
The competitiveness of Australian grain into international markets has been the most supporting factor to Australian grain prices, and traded values have continued to climb recently as growers ask for better prices.
Buyers have had to push prices higher to meet higher price targets set by growers.
The tinder had been building under Australian grain markets for some time. Thursday's USDA report may have provided a spark. We'll see if there is further upside to come for Australian grain prices.
One thing is for sure, you won't know unless you ask for it.
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