Chicago Board of Trade wheat futures moved to new highs at the start of last week, when nearby CBOT wheat futures in $A terms traded above the highs seen in last year's mid-year price rally. The market then faltered and fell away for the rest of the week.
Last year we were looking at declining global production and global wheat stocks. This year we are expecting a big rebound in production and a moderate lift in ending stocks. So, it is not surprising that having got to price levels seen last year that the market pulled back. The fundamentals for wheat alone do not justify the rally to date.
The real driver of the rally this year is corn. The cold, wet start to the US growing season has seen areas not planted, and crops that did make it into the ground languish in cold, waterlogged conditions.
That news is now old news, and so the corn market also took a break with the negative sentiment flowing over to wheat as well.
For corn there is still more to come though. Everyone is still guessing about the final acreage planted, and the impact on yield for the rest of the crop. The next real look at those two factors will come with the July USDA Report, which is still about three weeks away.
Meanwhile, warmer weather has been forecast in the US, which will help the corn crop develop and grow out of its current malaise. The end result is likely to be some volatility from day to day as guesses about US production levels play out against the day by day changes to weather. Some of that uncertainty will be removed when the USDA numbers are released.
Australian wheat growers have our own season to contend with as well as the machinations of the US markets. WA has received exceptional June rainfall, which is covering for their dry start and setting their season up.
Elsewhere we have also seen good rainfall in May and June in a lot of SA and Vic, but it has now turned dry and frosty, and June might not make it to average rainfall. That will increase the nervousness being felt about this season.
Meanwhile 10 to 15mm of rain for June across large parts of the NSW cropping belt does not cut it. April to June rainfall to date is still very short across much of the north west and central west of the state. It gets better for the Riverina and south eastern regions, but the key growing districts of the state are under pressure.
The Australian market has more readjusting to do if we are slipping into another east coast drought.
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