Equity markets stabilised last week but the general risk-off mentality continued to flow through Agricultural commodities.
Chicago Board of Trade wheat got smashed lower as funds ran for the door selling out of long positions. Once prices fell below key technical support levels, sell orders were triggered causing a steep correction.
Weakness in CBOT futures ahead of an impending northern hemisphere harvest saw Australian buyers taking a cautious approach to purchasing grain last week.
Buyers were generally reducing their price ideas. Many were happy to sit on the side-lines feeling relatively covered for the time being, particularly with reports offshore demand has become more restrained from the recent very strong levels.
Slower international demand for Australian grain is typical for this time of year as offshore buyers swing their attention to the northern hemisphere harvest.
Another factor at play is the strengthening US dollar as risk averse investors put money into the US currency given it is viewed as a traditional safe haven.
A strengthening US dollar against the Australian dollar typically means Australian exports become more competitive as our relative price is lower for importers.
However, if the US dollar is strengthening against a basket of currencies like it is currently, it means the currency of the importing nation is also weakening and they must pay more to import product.
This is occurring at the moment with currencies of many Asian grain importing countries weakening against the US dollar.
This weakness in local currencies along with knowledge the northern hemisphere's harvest will be under way shortly, regardless of the size of it, is seeing international demand tempered for now.
Given recent high prices you can understand end-users taking a cautious approach to buying more grain with these factors at play.
The question is does the demand for Australian grain improve again?
Ultimately that will depend on the eventual supply of grain from the northern hemisphere.
The knowns are, we have ample grain here while North America and Europe have less winter crop available than normal.
The remaining unknowns are, the condition and resulting production of the spring crops in the northern hemisphere, and the availability of grain from the Black Sea region.
As stated previously, if more grain gets moving from the Black Sea that is fundamentally bearish on global grain prices, but also hard to predict.
Australian grain prices have been trading under international values for some time now. As international values subside hopefully Australian values can hold.
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