The impact of the USDA reports at the end of September which revised US crop production estimates and stock levels have finally taken their toll on wheat, with prices dipping enough to breech the upward price trend that had been in place since early September.
Importantly, though, the shallower trend set up from late August is still intact on the December chart.
The larger than expected US spring wheat production estimate has been the main negative influence on CBOT wheat futures. But by the end of the week last week, Minneapolis futures had made a bit of a recovery, having fallen by over 40 US¢/bu in two trading sessions.
This week, there is the USDA’s World Agricultural Supply and Demand Estimates for October, which should pick up the latest numbers for US crops and will be looking closely at production estimates for Canada, the EU, Russia/Ukraine and Australia.
Big crops get bigger most of the time, so we are likely to see more supply added to the Black Sea estimates.
However, we are also seeing some constraints to the level of exports from Russia as it gets close to its logistics limits for grain exports.
Australia had below-average rainfall for September across most of South Australia and New South Wales, and parts of Victoria. That will have continued to hurt yield potential.
The real news for Australia is rain in the northern NSW and Queensland cropping areas. While too late to have a material impact on wheat production this year, it is setting the region up for a summer cropping program.
A good sorghum crop will replenish feed grain supplies, and stall the pricing regime that has been in place to attract grain to the north from southern Australia.
At some stage prices in the south have to move back closer to export parity, although constraints on the size of the South Australian crop should see strong competition from exporters as they strive to execute their pre-booked shipping slots.
In terms of pricing, Australia needs CBOT futures to hold their upward trend. This mechanism will provide the base support for our wheat market.
There are some good signs for that to happen, with weekly export sales from the US hitting their second-highest level for the year to date last week.
That indicates that US wheat prices are still competitive in the global market.
Russian prices are also still holding up well and tending to push a little higher over time.
Within Australia, we would expect to see basis levels begin to weaken as harvest gets under way in more regions in the north, and as rains build the potential for an early summer crop.
