The wheat market rallied early last week, moving sharply higher after extremely cold weather hit the US winter wheat belt.
At the same time, drought areas remained dry and crop condition ratings took a further hit. That turned around the second half of the week, when forecasts for rain came into the medium-term forecast. As the week progressed, the different models began to line up, promising drought areas their first decent rain for months.
Futures ended the week about where they started, having traded up about 35 US¢/bu from the lows set the day before the rally. Also supporting the earlier lift in wheat prices is the cold spring in the US. Apart from winterkill risks for wheat, the concern is that corn and spring wheat plantings could be delayed. That may induce yield reductions, but may also see some wheat and corn acres move over to soybeans.
After another cold weekend, the concerns will remain for a while longer, generating more volatility. The flipside to concerns about delays to corn planting is the pace at which plantings can take place once farmers get going. That happened last year, when the crop went in very quickly when conditions were right.
The other factor continues to be slow wheat exports from the US. As a percentage of projected exports, shipments to date plus sales are running at their lowest level since 2010. Speculation is US export numbers will have to be revised down.
The US continues to be up against strong exports from Russia, where a weak rouble is making wheat even more competitive in global markets. The view is US weather conditions will keep some volatility in the US grain markets for a while longer.
There is no doubt the drought in Kansas is an issue, with nearly 84 per cent of the state drought declared and crop condition ratings very low. It looks bad, but some reports suggest the crop is about three weeks behind in its development, and that seasonal rains could still see Kansas produce an average crop. Others are not so sure, and there are also dramatic temperature swings oscillating between freezing to very hot, all while the most severely hit drought areas remain dry ahead of the forecast rains late this week.
Last week’s rally meant APW forward prices hit $275 per tonne at Port Adelaide, close to $300 per tonne in the Kwinana zone, $294 per tonne in Victoria and $300 per tonne port basis in NSW.
While we should see better export prices for wheat than we had during last harvest based on higher end of year futures prices, it will take a big pull back in global production to deliver export parity prices as strong as the current forward prices.
