True to form, the market rallied at the start of the last week of May, with prices for the July CBOT futures contract surging to a high of 554 US c/bu coming out of the US Memorial Day Holiday weekend. The chart of nearby continuous futures prices shows that there is now only one day since the week starting July 15, 2015, where the market has traded higher than last week’s high.
The market then fell away sharply, but with the range of problems globally, it is probably too early in the northern hemisphere growing season for the seasonal high to be in place. We should see higher prices during June. The good news is that with tightening global wheat stocks, at least some of the gains seen so far should be retained into the end of the calendar year. While we would expect the market to ease in July and August as the northern hemisphere harvest pushes global supplies to their highs for the year, a complete reversal of prices like we saw in 2015 and 2017 is not expected.
June should be somewhat volatile. Dry areas in the US, Canada, EU, Black Sea and Australia are likely to get rain. As these events occur they will prevent crop conditions from getting worse and should see some improvements. As these scenarios unfold, and as weather forecasts are updated on a six hourly cycle, the markets will react one way or the other until it gets to the point where crops are mature enough, or enough has been harvested, to make the weather irrelevant.
The market will be assessing the global and local balance sheets in the various regions of the world and be looking at demand from major importers, and where supplies from the major exporters might be coming from. This is the danger for wheat prices into the end of the year. With large stocks behind them, the Black Sea exporters will be able to continue shipping large volumes into key markets even if their crops contract in size. That will continue to leave the US struggling for traction in export markets for much of this calendar year even as the global balance sheet tightens. Until the US can see a lift in export activity, it will remain hard for US wheat futures to retain all the gains that we might see during the middle of this year.
The real action for wheat futures should come in early 2019. Global wheat supplies will hit their seasonal low, and it should show a considerable tightening of stocks outside of China and the US. When that is put against the backdrop of seasonal uncertainty early in the 2019 production cycle, it should be enough to put prices back to where we are seeing them this year, well above those levels if a significant year on year drop in stocks is factored in.
