We enter the Christmas/New Year period with potential for upside on US wheat futures...that will be important for the Australian market because our ongoing strong cash market will need support from offshore.
Chicago Board of Trade (CBOT) wheat futures traded up to the top of their trading range on the first trading day in December, before falling back to mid range.
Just a week later, we also traded back to the top of the recent trading range, with the difference being that the market settled there this time.
That saw the end of last week producing the highest closing price for nearby futures since August 31, with some expectations that further upside will now be able to emerge.
Strong weekly US export sales drove the rally. On top of that a new export sale for over 240,000 tonnes was reported last Friday.
This was positive, and while the resulting lift in futures prices was further fuelled by speculators hitting buy orders to exit previously sold positions, there is some speculation that we are on the cusp of a new trading range ahead of the new calendar year.
In some respects last week’s international market got a setback, when the tender released by Egypt soaked up wheat from the Black Sea again, with no wheat being offered by the US or EU. The price for Russian wheat was also seen as being a bit weak compared to expectations.
The Egyptian market is in turmoil though, because an inability to pay for wheat cargoes already on the books has seen shipments delayed, and probably was the main reason why EU and US based traders stood aside from last week’s tender.
At the same time the market was a little surprised the grain that was sold did not have a price premium attached to it because of the payment risks.
Meanwhile we are being told that Russia won’t be running out of wheat any time soon. There does seem to be an issue with quality though, and this may account for strong sales of US Hard Red Winter wheat.
We are also being told that Russian fob prices are still on the rise, and that internal wheat prices are also still rising, hitting two year highs.
The market talks, and the market is suggesting that wheat stocks within Russia are tightening. That might mean that they are retreating back to “normal” levels rather than running out though.
So, we enter the Christmas/New Year period with potential for upside on US wheat futures. That will be important for the Australian market because our ongoing strong cash market will need support from offshore.
At the end of October our wheat market came off sharply when US futures also fell sharply. Prices then settled into a gradual downward price trend, bottoming out in November, also when US futures formed another low.
Since then our cash market has entered a modest upward price trend that has taken prices back to late October levels in the South Australian and Western Australian markets that have to supply the east coast shortfall.
Over the next couple of weeks we will see the Australian harvest begin to wrap up, we will have had the December USDA Report which will throw more light on supplies as well as provide an assessment of US export projections, and we will go into end of month trading and thin Christmas trading, which could be supportive if more net sold positions are closed out.
We should enter 2019 with a solid base for wheat prices until the 2019 northern hemisphere season settles down.
