Growers look to higher yields

In a price pattern from previous times, we often saw three successive lows during the US harvest period from June to August, and we may now be seeing the start of a seasonal recovery as we move past the bulk of the northern hemisphere harvest with just the late crops from Canada, and the southern hemisphere crops to come.

There are still a few factors shaping the direction of the market. One is the ongoing issues in Europe. The UK crop is running at its worst in 40 years. This will likely see them having to import milling wheat.

We also have dry conditions impacting the French and German corn crops. There is still downward pressure on wheat production estimates, but if their corn crop drops away as well, it will mean that more wheat will enter the feed markets to take up the slack.

Dry and frosty conditions continue to be reported from Argentina. Although they are still expecting a big crop, it is likely to be smaller than originally projected and is not adding to the current estimate for global supply.

Even the cold weather hitting the east coast of Australia was reported as potentially being an issue, but that is somewhat unlikely, given that good rains across SA and Victoria have added to yield potential.

North of Adelaide the rains of the past week have taken yield potential for this year from 84 per cent of average back to 94pc. Overall, the Australian crop is unlikely to have been negatively impacted over August.

The current rally in CBOT futures will stall, given that 35 US cents has been added to the December contract over seven trading sessions to Friday last week. In $A terms that rally was worth $A17.80 a tonne.

Once the northern hemisphere production estimates settle down, a risk to wheat prices could well be the size of the Australian crop. At least if global prices do get pushed lower by estimates for Australia rising, those growers responsible for the production gains will be compensated for the easing price by larger tonnages to sell.

All Australian grain growers will face much lower price levels this year, and so higher yields will have to cover for those lower prices. Good spring rains across Victoria, SA and WA will be needed to keep pushing final yield potential back up to average, or better, to cover for reduced prices.