The decline in the value of CBOT wheat futures has continued into the early part of August.
The low in September wheat futures occurred in April, when the market hit 430.75 US¢/bu. There have been three rallies since that time. The first one took prices to 474 US¢/bu in early May.
The second hit 490 US¢/bu in mid-June. The final rally was short and sharp, and went to 574.5 US¢/bu in the first week of July. The market took about a week to decide that the latest rally was going to fail, and since then it has been pretty well straight down for nearly four weeks. The decline has seen the market end last week with a low of 453.5 US¢/bu.
Last year, 450 US¢/bu was an important level from December until June. At times, it was a level the market traded to before pulling back, and then it became a level of support in early April. In May, the market traded above this level on a short, sharp rally, and then back below that level. Again, it became a level for resistance until the market gathered strength in June.
We are now at the point where 450 US¢/bu should become support in the near term. The more pessimistic view would be that the market will ignore that price level and continue down to test the April (and contract) lows.
The fundamentals do not support a return to the April lows, though. Since then drought has gripped the spring wheat areas of the US and parts of Canada, and dryness has crept into parts of the US corn and soybean producing areas.
In Australia, we have had a lean start to our growing season almost everywhere except Victoria and the south-east of South Australia.
The immediate negatives have been an upgrade to the Russian season and cooler, wetter conditions in parts of Canada and the US. In Australia, we are getting our first decent winter rainfall events as well. All of this will take pressure off.
Longer term though, current prices remain too low relative to where they should be against various measures of global wheat stocks.
On current USDA figures, three of the four measures of stocks are to decline this year. The fourth is the total global stocks number.
Here, the USDA is still saying that global stocks will lift 2.55 million tonnes year on year. Any reduction to US, Canadian and Australian crops not covered by Black Sea increases could see that modest buffer eroded as well.
So far, September futures have fallen by 121 US¢/bu since July 5. A 50 per cent retracement of that decline would take September futures back to 514 US¢/bu.
If it takes long enough, that might happen for the December contract, taking it to about A$240 per tonne from its current value of A$223 per tonne.