The ongoing wet weather in the US corn belt has allowed the Chicago Board of Trade wheat futures market to move to new highs, eventually trading, and closing, above the trading range seen since September last year.
On Friday night last week, July futures traded to a high of 544 USc/bu, some 120 USc/bu above the low set in May, and closing in on the 550 USc/bu level which has only been exceeded for three relatively brief periods since December 2014.
The surging US corn market is now the major driver of wheat prices. The global wheat crop does have its own issues, but individually, and collectively, they do not appear to be enough to have driven the market to current levels, nor to keep the upside open.
Rain in the US is impacting the winter wheat harvest, but the expected lower quality crop will find its way into feed markets, and total production is not likely to be affected. Meanwhile rains are forecast for Canada this week which will take some pressure off, and over in Russia it is getting late for ongoing hot and dry weather to keep cutting into their production potential.
At the end of the day, we are on the cusp of harvesting an additional 20 million tonnes of wheat out of the EU and the Black Sea, compared to last year, and this is keeping the global balance sheet well supplied.
So, it is the US corn market which is driving prices at the moment. Seriously wet weather is continuing to hamper attempts to replant failed crops, and to even complete the original corn planting program. Corn crops planted late will be expected to have lower yield potential, and crops that are suffering from being too wet are likely to see yield reductions as well.
The USDA is already forecasting a drop in US corn stocks of 16mt from levels seen at the start of the 2017/18 marketing year, with the trade expecting this decline to increase in future USDA Reports.
The trade is now expecting the corn market to move from the current high of 457 USc/bu to the 500 USc/bu mark. If that happens, we can expect to see wheat dragged higher as well.
This is giving us our best chance of challenging the highs seen in the mid year period last year, and taking us to levels then not seen since mid 2015.
With a smaller US corn crop, and ample supplies of lower quality wheat in the US this year, we can expect to see more US wheat used for feed, and putting downward pressure on US wheat stocks over the next 12 months, and allowing residual support for US wheat futures.
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