LED by crude oil prices, the CRB Commodity Index has slumped to a 13-year low, taking grains down as well at the end of last week.
However, thanks to an easing Australian dollar, the value of CBOT wheat futures has continued to lift, to close at the end of last week at its highest level since November 24.
Unfortunately, but as expected, basis levels in Australia have eased as A$ futures have risen, limiting the flow through into our market of an A$15per tonne lift in March futures from the recent low.
Our cash market has only captured $6 to $7 per tonne of the price recovery to the start of this week.
Fundamentally there is not a lot driving the wheat market.
It is responding more to currency moves, moves in general commodity prices, and to short covering where there has been support from buying back of a large sold position in the futures market.
Argentina has emerged as a competitive concern though, apparently winning part of a tender into Algeria at rock bottom prices.
This is seen as a response to expected lower export taxes for Argentine grains as a result of policy changes after the recent presidential elections.
While wheat might not be impacted as much as corn and soybeans, there may be enough in it to apply competitive pressure, particularly on US wheat exports to Brazil.
Last week’s US Department of Agriculture (USDA) Report was also seen as mildly negative after the USDA raised the estimate of the global crop by 1.9 million tonnes to 734.9 million tonnes, contributing to a 2.6 million tonne lift in global stock estimates.
Production was up from a 1.6 million tonne revision for the Canadian crop, with opening stocks lifting to also contribute to the change in ending stock estimates.
Curiously, the Australian crop has been left at 26 million tonnes, despite ABARES coming out with their estimate of 23.982 million tonnes at the start of December.
Even that may prove to be an optimistic assessment of our crop after the fire and wind losses in late November in South Australia and Western Australia.
From here there may not be a lot to drive the market one way or another, and the path of least resistance could easily be down over the Christmas/New Year period.
The next market driving news is likely to be discussion around the plated acres for the northern hemisphere crop, and then the growing conditions for that crop.
There may be some positives for wheat prices.
Already commentators are calling the US wheat crop 53 million acres, falling to 51 million acres in 2017.
That puts the wheat area in the US on a pathway to its lowest in 47 years.
Also, there are concerns about dry conditions in India and again in Ukraine and a lack of snow cover in parts of Russia.
With the Black Sea crops entering dormancy, dry conditions are being played down at this time of year, although the snow cover is more of an issue.
The January USDA Report may be of interest to the market as we get the first official estimates of US plantings for 2016, and when maybe the true size of the Australian crop will be fed into global figures.
We will also see if exports from Argentina are having an impact on global trade and demand for US wheat as well.
(Source – http://www.farmweekly.com.au/news/agriculture/cropping/general-news/wheat-futures-lift/2749690.aspx?storypage=0)