CBOT wheat futures have begun to recover from the shock of the September USDA Report, and have posted modest gains over five sessions before losing a little last Friday night. On the weekly continuous chart it looks as though an upward trend line from the lows of last December remains intact, with a medium term move from 500 USc/bu, towards 550 USc/bu now under way.
The recent drop in US wheat prices has been useful because it has coincided with a modest lift in global wheat prices, led by EU and Black Sea prices. As long as US prices don’t overdo things on this next upward swing, US wheat may come into the mix for importers.
Ticking along in the background is also our own season. September has turned unseasonably dry across all states, putting crops under pressure from WA right around to Qld. Potential is being lost daily as crops are pushed to the limit. The feeling is that at least 2 million tonnes of production could come off current estimates.
That would push Australian wheat production down to around 17 to 18mt, and force another revision of the global balance sheet in the October USDA Reports. Global production estimates and availability of supplies for importers will need to be adjusted.
Other problem areas include Canada where early snow has stalled harvest, as has wet weather in spring wheat areas of Russia.
Meanwhile, not just a lack of rain, but frost is also impacting our end of season. Significant frost events have been reported from WA, SA, Vic and southern NSW. Assessments are being made, and affected crops are hitting the ground for hay production.
Canola is hard hit in SA, Vic and NSW, while in WA the impact on barley production was reported initially. Wheat crops have not been hit as hard because they were not as advanced at the time of the frosts.
Over the next couple of weeks or so more frost affected crops are likely to became apparent, and if it remains dry, more crops will be assessed for haymaking versus taking through to grain.
We are also not out of the frost season either, with large areas of wheat still vulnerable to a significant frost event if that occurs.
With the eight-day rainfall forecast out to the start of October showing limited rainfall across all wheat growing areas at the start of this week, one has to assume that the risk of frost remains high, and if not frost, then drought will take yield away anyway.
Whichever way we look at it, the view that Australian grain production is declining appears to be correct.
New season wheat prices are now above $400 a tonne in SA, supporting prices that are closing in on $500/t (port basis) in northern NSW. Price levels are the same in southern NSW, which means that the domestic market remains poised to suck grain in from Vic and SA.
Against CBOT futures prices, current Australian prices are very high. This will make the task for exporters difficult, and ensure at this stage, that grain is diverted to the domestic market. At some stage though, SA and WA prices will have to fall back to export levels, probably after initial domestic supplies for NSW and Qld are locked in.
