The Christmas/New Year period saw some volatility in wheat futures prices. In mid December CBOT futures had rallied, moving above the top of trading range seen since August of 525 USc/bu. March futures peaked around 538 US c/bu. The market then pulled back from that level, falling sharply around the Christmas break to trade close to 500 US c/bu.
The initial rally in December was a positive for wheat as it showed that US futures were able to respond to rising Russian wheat prices, and to some increased sales into major Middle East and North African markets. While a pull back was expected, it was disappointing to see the market trade back to the base of the trading range so easily.
To be fair, the market did not retest the lows of October or September, but the lows of November were equalled. At least the 500 USc/bu level has held on continuous charts for nearby futures, which does signal close to a 100 USc/bu year on year lift for CBOT futures.
The focus for the market will now be the near term for the next three months, and the longer term into the end of 2019, and our next harvest.
Near term not much changes. The market will be looking for confirmation US wheat is competitive in export markets and that export volumes lift in response, and that the acreage planted to winter wheat in the US has been hit by planting delays and planting plans abandoned.
A lift in export volumes in January and February will be needed to push the market back up to its December highs. Then, if winter wheat plantings are indeed down as expected by the market, this will support any lift in prices short term, and become the focus for price direction during 2019.
There is no doubt that Russian export volumes have exceeded expectations of most in the market, as they wind down large stocks accumulated from the two previous record seasons. Even though Russian prices are rising, and there are expectations that the Russian government will move to restrict exports, that does not seem to be happening. In part this drove the weakness in US futures prices as Christmas arrived.
The market will have to rely on the US winning export sales purely on their competitive values rather than being boosted by an accelerated decline in physical export volumes from Russia.
As the year unfolds, the outlook for the 2019 global wheat crop will come into focus. Winter wheat plantings in the US and the condition of the winter crop in Europe will both be watched closely, as will winter weather conditions in the Black Sea.
At this stage gains in production are likely to be limited by a smaller planted area in the US, and from ongoing dryness in parts of Europe. The big question will be what happens in the Black Sea. Will they be able to maintain their high production levels of recent years to continue to dominate the world market and maintain global supplies?
Confusion is also likely to be thrown at the market with the US government shutdown. The USDA is one of the departments affected, and already major reports on grain stocks, winter wheat plantings, and global supply and demand are being delayed this month.
A lack of USDA data for the markets may increase volatility, particularly when delayed reports are finally released.