Wheat futures were down but failed to revisit contract lows before rising sharply on Friday night.
That has resulted in some welcome support for wheat prices. At this stage, it looks like the lows seen last year were multi-year. While the expectation is the northern hemisphere harvest will keep pressure on prices, this year’s low may be in place already if the April low holds.
We are entering the make or break part of the year. About 80 per cent of the time that wheat prices rally in the second half of the year, that rally has been under way from early June. Occasionally it doesn’t manifest until July, but often the indicators are in place before then.
With large wheat stocks in the US, and perceived large stocks elsewhere, no-one is forecasting a sharp price recovery this year. But the outcome of the season in the northern hemisphere remains a risk.
A few curious things are unfolding. One was a sale of wheat from the US to Egypt last week. First, the view had been that Egypt would rely on its own harvest for a while, rather than look for more imports at this time of the year. Second, they bought wheat from the US, with US wheat priced more than US$10 per tonne below Russian wheat.
This shows how competitive US wheat is at the moment, and that the Russians are either not competitive, or are not exporting aggressively at the moment. That seems a little strange given their large crop last year.
Not much is being said about the Black Sea region, but key analysts are continuing to lower production estimates for the EU. Europe has been hit by dry, cold weather so far this season. Frosts hit France, Germany and Poland in April, and dry conditions have been a concern in France, the UK, Belgium and Spain. While the total EU grain crop is still forecast to be larger, estimates are pulling back on earlier levels – particularly for wheat and barley. Separate estimates for Germany are also being lowered on the back of cool weather, frosts and dryness in a number of regions.
In the US, ongoing rain and cool weather are also causing concerns about disease levels and the early harvest. We won’t know the full potential of the US wheat crop until harvesters hit Kansas in a few weeks’ time.
All eyes should be on the Black Sea, because that has been a trigger for every mid-year price spike since 2007. An issue there would support prices in the next few weeks.
At this stage, we should be looking at better prices for the 2017-18 crop. What we are waiting for now is whether northern hemisphere issues will give us a forward selling opportunity worth considering.
If one does not begin to appear during June, we will probably not get a reasonable opportunity this year.
