The coronavirus continues to rip through the world, leaving carnage in its wake both at the human level and in markets.
Wheat futures have been pushed higher by panic buying of wheat-based products at the consumer level, and now possibly by increased buying of wheat itself by major importers.
There is some justification for importers to be concerned about supply reliability, with port and logistics lockdowns possible in Argentina, which would impact exports of soymeal and soyoil, and now Russia has moved to limit total grain exports for the April to June period to 7 million tonnes.
The Russian limits should not really be an issue as the tonnage reflects what most forecasters were saying was a reasonable export program for that period anyway. However, it remains to be seen how it is viewed by major importers who may try to secure more wheat than normal for a while, simply to create their own stocks for food security in an uncertain world.
In terms of Chicago Board of Trade wheat futures, intra-day trading on Friday night last week saw the market get within 3.75 US cents a bushel of the high set on January 22. On Wednesday last week the market had its highest closing price for a nearby contract since January 24.
To find nearby Chicago futures trading at comparable levels to last week, we then go back to August 2018, and then July 2015.
The total move in May CBOT futures from March 16 is now 95.25 USc/bu from the intra-day low on that date, to the intra-day high set on Friday night last week.
In $A terms that represents a move of $A57 a tonne, with currency being close to unchanged over that period. That is a period of 10 trading days to completely reverse the downward pattern that the market had moved into since January 22.
While wheat futures have steadily risen since mid-March, the Australian dollar has been very volatile from day to day, to end last week at a similar level to where it was trading in mid March.
That volatility in the currency has translated into volatility in the $A value of CBOT futures. Last week, based on daily closing values, May futures peaked at $A355.13/t. They ended the week on $A340.36/t, despite an 8.75 USc/bu lift in underlying futures prices.
Moving forward the fortunes for wheat will be dictated by importer buying and whether that makes the Russian export restrictions relevant or not, and then, over time, how the northern hemisphere growing season begins to unfold. Alongside that, currency moves will either dampen the impact of moves in futures, or supercharge the rallies and declines, as we saw last week.
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