Wheat futures continued to ease over the last week.
The upward trend established from a low on June 1 is intact, but is being challenged. There’s also been a rally in the Australian dollar, as our currency catches up with the notion that official interest rates cannot stay low forever, and that at some stage central banks will begin pushing rates higher.
Conventional wisdom in Australia had been that our rates would remain unchanged for some time, but that sentiment changed last week and our currency rallied sharply. The net result is December futures have fallen to A$242.81 per tonne. The peak price based on daily closing futures prices had been A$280.34 per tonne, set back on June 6.
From here, the value of the currency may not have a big impact if last week’s move was in fact a correction. Our dollar may simply move up and down in reverse to moves in the US dollar. In turn, moves in the US dollar will have a balancing impact on the price of underlying wheat futures in US dollar terms. Where wheat prices head from here should be determined by the fundamentals for the global wheat market, and how the speculative funds read that in the short term.
Current projections for global wheat supply and demand still support a significant year on year lift in the A$ value of CBOT futures. Stocks outside of China are set to decline for the first time in five years.
Stocks excluding China and the US are set to fall for the third year in a row, which means the drop in stocks expected in the US is not the only driver of declining stocks. Only total global stocks are not set to fall, where a further buildup of stocks within China will see global stocks lift by 2.55 million tonnes despite the sharp reductions elsewhere.
It is hard to see estimates for this year lifting. US and Canadian wheat production estimates might decline further. In the EU, more could come off their estimates, although that might be covered by further increases for Russia.
That leaves Australia, where most crop watchers think more potential is being lost. Any reduction in our production estimates may be the factor that continues to tighten the broader global measures.
At the moment, stocks excluding China and the US are forecast to fall to 107.87 mill t, which will be the third lowest since 2007-08.
Trendline analysis suggests December futures should close the year close to A$300 per tonne – $60 per tonne above where we are this week.
What may stall growth is the still high level of stocks within the US. That might keep end of year CBOT futures prices close to the bottom of the expected range.
