US grain futures markets are now running without the benefit of USDA data on global supply and demand, US grain stocks, and US winter crop acreages, due to the partial government shutdown.
Wheat futures rallied by 25 per cent last year, index funds reacted by selling down wheat and moving funds into areas where gains were lower, or where prices retreated.
The Australian market has also had to contend with a higher Australian dollar. Since the currency plunged to about 67 US cents on January 3, it has recovered to around 72 US cents at the start of this week.
That has kept pressure on the Australian dollar value of US futures. The net result is that we have had a lacklustre start to 2019 for the Australian cash wheat market. While prices have held in the Newcastle and Port Adelaide port zones, most other zones have seen values ease by as much as $7-$9 per tonne.
In the global context, the market is assuming the USDA would have announced a record low planting for the 2019 US winter wheat crop. This is based on earlier data that showed plantings were delayed because of wet weather, and that in the end some acreages would not have been planted.
It will be interesting to see what happens when the official data is finally released. It could be a case of buy the rumour and sell the fact when the data is available. However, if the cuts to acreage are steeper than the market is assuming, it will be more supportive going forward.
Attention continues to focus on Russia, where it is obvious that supplies of exportable wheat that can be economically shipped, is in tight supply.
One suggestion is that the Russian government will subsidise freight to allow more inland wheat to move to export terminals and enable Russia to maintain higher levels of wheat exports for longer.
The consensus is that at current futures price levels, US wheat is competitive in world markets, although other origins still hold a freight advantage into some destinations. What we don’t know, is whether importers have been shifting their purchases over to the US during the recent slip in price levels.
When the delayed USDA reports are released there could be some volatility. If the market has overestimated the drop in wheat acreage or the level of export sales, there could be some serious downside.
However, the overall fundamentals should say 2019 northern hemisphere wheat production is under pressure, and that Russian wheat stocks are being depleted. That will provide a base for prices.
