Market slow to advance

Market slow to advance


Grains
MARKET MOVES: Recent improvements to US futures have not led to the support for Australian cash prices that might have been expected in most port zones.

MARKET MOVES: Recent improvements to US futures have not led to the support for Australian cash prices that might have been expected in most port zones.

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The malaise continued in the first week of 2017, with only NSW APW prices increasing in line with the move in CBOT futures since December 19.

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The grain markets were generally quiet over the Christmas/New Year break, with little interest in most port zones once the holiday period arrived.

The malaise continued in the first week of 2017, with only NSW APW prices increasing in line with the move in CBOT futures since December 19. The futures market bottomed out at 392.75 US¢/bu on Christmas Eve. This was basically at the low for the March contract, but still above those set by nearby futures in early December and late August.

It was important for the futures market to hold at that contract low.

It then posted a significant rally to 428 US¢/bu on Friday night last week, before pulling back to close below the Thursday night close.

The market rallied against a number of minor factors, including some weakness in the US dollar, dry conditions and extreme cold in parts of the US winter wheat belt and ideas that US wheat is becoming more competitive again in international markets.

The modest rally also drove some speculative buying as funds moved to lock in profits made on large sold positions. There’s also been some buying interest from index funds, who are expected to swing more capital into grains – particularly wheat – given the drop in prices over the last year. We could see the market hold, or even trade a little higher during this week, ahead of the January USDA report. That will be driven by speculation about what the report might say regarding planted acres for the US winter wheat crop and grain stock levels, particularly for wheat and corn.

If the USDA report delivers a surprise with lower than expected wheat acres in the US, and the cold and dry conditions persist, it may be enough to prevent wheat futures from falling all the way back to contract lows on the next run down.

It may even let the contract trade to new nearby highs before the weight of US and global stocks limits how high we can go at this stage of the season.

The short-term rally in US futures should be providing some support for Australian cash prices.

But in most port zones that does not seem to be the case.

At best, it may be reducing the risk of the cash market drifting back to the low in prices seen in early December. Once we are clear of fund buying and the USDA report, the market will probably run out of bullish news to trade until the US crop begins to come out of dormancy.

Then the full impact of dry soils and winterkill will become apparent. Until then, it will be interesting to see where the Australian crop lands. It would appear yields have been underestimated across large parts of South Australia and Victoria, so we could see the crop get bigger.

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