THE wheat market has stabilised a little after its sharp rally, and initial sharp sell-off. There seemed to be ongoing support into the end of the month, probably on the back of some ongoing profit taking.
It is possible that the market will not retest the lows put in place during April, but we will have to get through the US harvest period before we can be sure of that. There are certainly some projections suggesting that July futures will bottom out at 400 USc/bu, or some 50 USc/bu below the lows so far.
Under that scenario, December futures would probably drop down to around A$215 per tonne, and push our forward market down around $235 per tonne.
At the moment the market is getting support from corn and soybeans. Corn in particular is being supported by adverse conditions in Brazil. It has been dry, and although rain has arrived, the forecast has turned dry again, with colder than normal temperatures. Production estimates are being reduced by as much as five to 10 mill tonnes.
Meanwhile the US corn crop is going into the ground at a rapid rate after a wet start.
The conditions for wheat are improving in key areas. Rains have arrived in the US, with some concerns that there may have been too much rain, with a disease risk now possible. However, there are also rains helping previously dry areas in Ukraine, and although the setbacks from last autumn won’t be covered in full, conditions are improving.
Europe is also having another strong season.
There may be some concerns in Canada, with some areas being dry, and others overly wet. Winter is still lingering on longer than normal as well, and there are projections that if La Nina develops, we could see an early onset of winter at the other end of their growing season.
Another supporting factor has been a weaker US dollar against major currencies.
What we are faced with are limited opportunities to make forward sales at levels safe enough to cover the risks, while still facing the risk of prices falling away during the winter period, and not recovering in full if global production holds up with improving production conditions across Europe and the Black Sea.
The main positive for price support continues to be the trend of weakening stock levels outside of the US and China. Depending on how that plays out, we could see enough support so that at least prices for the 2016 harvest are no worse than the levels we saw during December 2015. To give us a significant year on year price rise, market sentiment will need to change significantly from its current state.
