Last week CBOT futures gained some ground, being up about A$5 a tonne from the week before. At the same time cash prices in Australia eased by $3 to $9/t in most states, with the Port Adelaide zone in SA being an exception, with a $5/t lift.
Basically, the Australian market has been in a downward price trend since the market peaked in October last year, even though US futures, as a measure of global wheat prices, has only been in decline since late January.
To be fair, in a drought the Australian market would often peak in our spring and then decline, but having declining global prices now as well has kept our market in decline for the first quarter of 2019.
The global market is in no hurry to find upside, even though there are basically no risk premiums being built into wheat prices in any of the major global production areas.
News out of eastern Europe is that areas of dryness are building, and further west dryness was also becoming a concern. However, rains have been reported in Germany, the UK and parts of France and Poland that had seen dry conditions building over the past few weeks. Rains are still in the forecast for this week.
With falling prices for old season French wheat in particular, any weather concerns have not been enough to trigger price gains on the back of any current weather issues. Lower EU wheat prices are also pressuring US prices.
In the US snow and rain continues to be forecast for sodden spring wheat areas. The risk of planting delays for spring wheat continue, which also increases the risk of some acres going from wheat and corn over to soybeans.
However, acres that might be lost to spring wheat in the US are likely to be replaced with more acres of spring wheat in Canada, as Canadian farmers plan to switch from canola to wheat in the face of declining canola prices in the wake of the Chinese bans being imposed on major Canadian canola exporters.
So, for this week at least, there appears little appetite for global wheat prices to gain, and to take any notice of potential production problems for the 2019 northern hemisphere crop. That said, things can change quickly, particularly if issues of drought build in any significant parts of southern, northern or eastern Europe.
Also sitting behind this risk is the large net short (sold) position in grain futures in general being held by the speculative funds. If weather concerns start to lift prices, a spate of short covering could easily generate a lift in the market.
Here in Australia there have been widespread rains across drought areas in Queensland and NSW. Follow-up rains will be needed, but just maybe the rains to date are behind the ongoing erosion in prices.
The expectation is that our market will form a floor until new season supplies break the tight balance sheet open, but where that floor might be will be driven by the strength in offshore markets as well. How our 2019 season develops will also play an increasing part. There is no doubt there is a degree of nervousness across SA, Vic and parts of NSW as the big dry continues well into our early planting window.
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