WHEAT values last week made their largest jump yet off decade lows set in the past two months.
There has been a sharp rally in Chicago Board of Trade (CBOT) December wheat futures, from below US400 cents a bushel to US421c/bu on Monday, a lift of more than five percent.
The price jump has spilt over into a rise in Australian wheat values, with ASX January wheat futures for the east coast contract hitting $240 a tonne before falling to $238/t on Monday. The $240/t was the highest price offered since mid-August.
Analysts said the price had to lift off the extreme low values and that there is some positive news for the market now, but warned the glut of stocks internationally still weighed heavily on the wheat sector.
“It was always going to bottom out at some stage,” said Malcolm Bartholomaeus, Bartholomaeus Consulting.
“American wheat is now very competitive into global markets and that has been reflected in sales into both North Africa and the Mediterranean.
“That has in turn boosted exports which obviously is supportive for pricing.”
Charlie Brown, AWB pool manager, said US prices have fallen to levels where US wheat can compete against cheaper origins.
“For the first time in a very long time US wheat is price competitive, and that means the export data is positive.”
Mr Brown said the challenge would be in maintaining this competitiveness factoring in the market rise.
“We saw the US miss out on a Saudi Arabian tender recently, so it only took a small rally and US wheat didn’t get in, so that shows the challenges in seeing this rally push any higher.”
However, he said there was good news for wheat producers in that the rally seemed to signify the seasonal low in the market.
“The good news is that the market seems to have bottomed out, whereas a few weeks ago we were looking closely at whether prices could drop further again.”
Mr Bartholomaeus said while there was a lot of wheat across the globe, stocks were running down in all nations but the US and China.
“There are some interesting signs behind the headline number, but equally there is still a lot of wheat around.”
Hamish Allerton, market analyst with Rabobank, said technical factors were also an influence on the price rise.
“We had a market that was net short and probably in profit so there has been a lot of exiting of positions and profit taking which has had a big influence on pricing.”
Mr Allerton said another external factor to monitor was US interest rates.
“The market has been factoring in a late year interest rate rise in the US for some time, however we are now monitoring the rhetoric from the US Federal Reserve, and if we don’t see a rate rise that will be supportive of US exports and thus US-priced wheat futures.”
Along with this he also said there were good stories in terms of demand for wheat.
“It has been the demand side that has driven any price rises we have seen over the last three months and that is again the story.
“We can see US export data shows they are 4-5pc ahead of expectations, which stands to reason given the grain is not expensive.
He said although the US missed out on the Saudi tender, it was a close run thing.
“We’re seeing US wheat very competitive in tenders against traditionally lower cost producers such as those in the Black Sea region.”
Mr Allerton said Rabobank did not have any expectations on the duration or strength of the rally.
“It is very demand driven so it is hard to put a figure on how high we see prices go or for how long, but certainly we now see Australian grain, particularly barley, competitive into markets such as China and when it is price competitive, at some stage you see demand re-enter the market.”
Mr Bartholomaeus said the higher protein wheat market was one to watch.
“The global market is already short of high protein wheat and buyers such as China will be looking out for it.”
He said the wet Australian spring would potentially mean lower stocks here too, although he said there would still be some supplies.
“It will come down to paddock history and we are unlikely to see wholesale districts with high protein wheat, but it will be possible to find higher protein lines scattered across all growing regions.”
Mr Brown agreed that although the percentage of high protein wheat was likely to be down in Australia, in terms of absolute tonnage it would still be possible to find APW or better grade wheat.
And he agreed the global supply picture suggested a sizable premium for high protein lines could open up.
“There certainly is a protein story emerging.”
In the medium term, Mr Bartholomaeus said there is some nascent concern about the condition of the winter wheat crop in the northern hemisphere as it moves towards the winter dormancy period.
“It has been quite dry in parts of the US, through France and in the Black Sea region.
“If the crop does not have enough rain before conditions cool right off it enters the dormancy period under-developed.”
Mr Brown said the market was unsure as to the true extent of the moisture deficit issues in Russia.
“It will be something to monitor.”