It looks as though the wheat market has put a seasonal low in place.
Futures prices bottomed out on August 3 at 400 US¢/bu on the September contract, and have now traded back up to 427 US¢/bu.
The only scare since then was when the USDA Report was released on August 12.
Prices initially fell to around 405 USc/bu, before recovering within the trading session. Based on daily closing prices, the September contract has moved from a low of 401.75 US¢/bu to 427 US¢/bu.
The critical December contract moved to 444.75 US ¢/bu at the end of last week, a gain of 16.75 US¢/bu.
The currency has been relatively stable, spending most of Augustin the 76-77 US¢ range.
What we are seeing in Australian dollar terms is due to moves in underlying US futures, with the December contract posting a gain of A$8.01 per tonne coming out of the early August low.
It’s possible we will retest the seasonal low of course, but the longer we go, with support for US futures above the current low, the less likely a serious drop in prices.
Support at the moment is coming from a perception that the USDA has overestimated the yield potential of the US corn crop.
We are also seeing support from wet harvest conditions, which seems to be a common theme across Canada, parts of Europe and into the Black Sea.
Although not automatically carving into total wheat supply, it is continuing to provide support for milling wheat prices. There are also lower proteins coming in from some of the high yielding crops in the US and Black Sea regions.
However, we are not seeing the same gains flow over into our new season forward prices. Across the board, forward prices are lower now than they were on August 3, as basis levels wind back.
We are also seeing east coast port zones trading at a premium of $5 to $8 per tonne to Port Adelaide, well down on recent years.
The poor performance of Australian prices is understandable as our season continues to unfold with increasing yield potential.
Australian wheat prices have also been above export parity in various port zones, and so an adjustment down is also understandable.
The benchmark for this year’s harvest is about $260 per tonne for APW based on last year’s average in the Port Adelaide zone.
That implies a fall in price on the east coast though, as prices pull back to match export values.
At this stage, it looks like a big ask for prices to rally by $30 per tonne over the next three months. That means we may have to face harvest cash prices around the $250-260 per tonne level for this year's harvest.
