The wheat market continues to grind lower. In the last week currency has dominated proceedings, with the US dollar falling to its lowest level since October. That should have triggered a short term rally in commodity prices, but for wheat, and grains in general, that has not been the case.
The lower US dollar also meant a higher Australian dollar, with the currency peaking at 72.4 US cents, up from a daily closing low of 68.5 US cents set on January 18.
The combination of a higher Australian dollar and lower US futures was disastrous for wheat, with the March futures contract falling by around A$6.30/tonne for the week ending last Friday night in the US.
At the moment a one US cent move in the value of the Australian dollar changes the A$ value of US futures by close to A$3.35 per tonne.
With futures falling, and the A$ rising, we have seen daily closing US futures prices move through an A$12.80 per tonne range since January 18.
The weakness in the A$ value of US futures has also flowed into our cash market, with APW prices falling by $15 per tonne on the east coast and in Western Australia, and by $8 per tonne in South Australia, from 18 January to the end of last week.
The fall in US futures in US$ terms is not really what was expected given the drop in the US dollar, and some news that should have been supportive for wheat values. The bad news for wheat was a very weak US weekly export number released last week, but other news was more supportive.
For example, the drought in South Africa should see that country, and other African nations, lift their level of imports of wheat this year, as well as corn imports. The other positive news was the StasCan Report that pegged Canadian wheat stocks at 20.7 mill tonnes at the end of December. This was 1.1 mill tonnes below market expectations, down 19% year on year, and down to an 8 year low.
Egypt was also back in the market for wheat, but for a second time they cancelled their tender after very few offers were received. This is on the back of a recent rejection of a French cargo of wheat for ergot contamination. Egypt had tightened their standards to close to a zero tolerance, and the trade have retaliated by either not offering grain into that market, or if they do, at a higher price. Even with a reversal of their decision on ergot tolerance levels, Egypt failed to attract much in the way of wheat again.
There have also been concerns about Egypt’s ability to pay for imports in a timely fashion, with letters of credit being delayed, and slowing shipments of wheat to that market.
These trade disruptions are having a negative impact, with European wheat prices coming under pressure. In turn that continues to leave US wheat uncompetitive into a lot of markets, despite record low ocean freight rates that should see US wheat move into more markets.
However, Egypt will have to buy wheat eventually, and while Russian and French wheat might still get in ahead of US wheat, it may ease pressure on EU wheat futures, allowing US futures to stop falling as well. This week is pivotal for the direction of the market. – MALCOLM BARTHOLOMAEUS
