Wheat futures ended down last week, with end of month selling pushing the market down $A5.93 a tonne for the last trading session of August, and down $A8.26/t for the week. For the month of August, the decline was $A16.66/t.
Last week's trading close was not helped by a rising US dollar, that once again made US wheat less competitive against European Union and Black Sea wheat. We will also have export pressure from Argentina as they try to move their large crop into international markets.
There were also larger than expected deliveries against expiring September futures contracts, indicating that the futures market is ahead of cash markets. All three US wheat futures contracts saw deliveries being made against them.
We are also seeing little let-up in the size of the global wheat crop, with better than expected production likely for parts of the EU, notably France. The Ukrainian crop could also be upgraded, as could the Argentine crop.
Meanwhile the Australian crop remains under pressure from dry weather, and forecasts for a warmer and drier spring across large parts of the grain belt. We are also seeing significant frosts across south eastern Australia as clear skies become the norm at the moment.
With the risk of frost damage, and good looking crops being vulnerable if it does stay too dry, many farmers are once again looking at the prospect of cutting canola and wheat crops for hay rather than taking them through to grain.
It is fair to say that the Australian crop is getting smaller, with the market also recognising the risk to production that has emerged over August. Sydney wheat futures rose last week against the falls in international futures prices.
Rabobank has put the Australian wheat crop at just 18 million tonnes, against 21.2mt from ABARES (due to be revised this month), and 21mt in the latest United States Department of Agriculture Report. This is still a little higher than last year's 17.3mt, but the season is in the balance across a lot of WA. Victoria probably has the best crops of any state this year, but even here pockets of concern are emerging as we enter spring.
The longer range forecast is being driven by a positive Indian Ocean Dipole. The cooler waters between Australia and Indonesia are likely to result in less cloud formation in the northwest, resulting in less rainfall and above average temperatures.
The rain forecast out to September 9 only shows relief for the southeastern part of the country, covering southern parts of Vic and SA. That does not help the key regions of WA or NSW.
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