WHEAT futures continue to struggle as the recent weak upward price trend was tested at the end of last week, and as a higher Australian dollar added to the downside in A$ futures values.
There is little incentive for wheat futures to lift, while the general sentiment is that global stocks are still plentiful. However, there are some small pockets of positive news. One is a modest reduction in estimates of EU ending stocks. The EU cut their estimate of ending stocks by 1.8 million tonnes, with ideas that livestock feeding has increased use, and with a slight improvement in exports.
One factor that pushed wheat prices lower last week were reports that Russia was considering reducing or removing its export tax on wheat. With 30 days’ notice normally given for such changes it was feared that importers would simply shut down until cheaper grain became available. The news out late last week was that maybe the tax on wheat exports would remain unchanged after all, allowing US futures to recover some of their lost ground.
At the moment it seems that wheat prices are at the mercy of various political decisions being made in countries like Russia, and on the gyrations in other markets that are affecting the value of the Australian dollar. The end result is that the direction of Australian wheat prices remains unpredictable, with opportunities that do arise being short-lived and easily missed.
The real key to upside remains a lift in US futures coinciding with a dip lower in the Australian dollar. In fact the Australian dollar is having as much impact as anything most of the time, with the low in early January being associated with the dollar being around 72 US cents, while the recovery to the January high coincided with the day the dollar slipped to 68.5 US cents. Last week we saw the currency edging back up to 71 US cents, which also coincided with a dip in US futures, to push our market back into relatively weak territory.
Every time that happens, it leaves the market with a lot more work to do to get prices to the next level being targeted by growers. With weak prices for the last week or so of January, many growers have opted to hold onto grain.
We may get a little support from this month’s USDA Report if they factor in lower stocks for the EU, and if they become a little more realistic with the size of the Australian crop. In combination both could account for a four mill t drop in global stock estimates, assuming that adjustments elsewhere in the global balance sheet don’t cancel them out. Outside of that we have to patiently wait for the first major weather scare as northern hemisphere crops break dormancy.
