Wheat futures spent most of the last week in a holding pattern close to 436 USc/bu, after declining from a high of around 460 USc/bu. The market looked as though it was heading lower, but the decline was stalled as the market watched the weather forecasts for the US Plains.
As is often the case at this time of the year, parts of the US plains have been dry coming out of winter. This, combined with a lengthy period of above average temperatures, left the crop vulnerable to a late freeze as it was pushed out of dormancy.
Rain has been forecast for some time, but uncertainty persists on where rain might fall, and how much would arrive. We have started this week with a clearer picture of lower temperatures and rains to come with it.
Initially, coming out of the dry weekend, prices had rallied. They were also supported by news of a significant sell down in grain futures which has left the market vulnerable to a sharp buying correction if triggered by something like disappointing rains. However, confirmation of a change in the weather patterns in the next couple of days was enough to deflate the balloon and let futures resume their downward move.
The expectation is that wheat futures will hold above previous contract lows in the short term. Disappointment with rainfall will possibly generate a short term rally.
Longer term we should see some up and down price movement through April as the northern hemisphere season shows its colours, in both the US, and elsewhere in the EU and Black Sea. Once the season settles down, the market will grind towards its seasonal low sometime in the June to September period.
There is no doubt that a couple of good, timely rainfall events in the US will be negative for wheat futures. We are also seeing the big rains in eastern Australia reportedly setting up soil moisture levels for the Australian season, and general reports suggest that the crop in the EU and Black Sea is emerging from winter without too many issues.
The opportunities for us for both old and new season wheat pricing will be driven by fluctuations around short term weather commentary, US export numbers (and therefore stock levels), planting intentions for spring crops, and new season production estimates.
One factor which may prove a positive for wheat prices, and allow a floor to be put in place at levels above current contract lows, is a sharp addition to the net sold position for the funds in the last week or so.
The large sold position, combining with any weather concerns, is where opportunities for pricing Australian wheat may come from as we go through the northern hemisphere growing season.
