Wheat futures spent most of the last week in a holding pattern close to 436 USc/bu, after declining from a nearby high of around 460 USc/bu. The market had looked as though it was heading lower, but the decline was stalled as the market watched the weather forecasts for the US Plains.
As is often the case at this time of the year, parts of the US plains have been dry coming out of winter. This had combined with a lengthy period of above average temperatures which left the crop vulnerable to a late freeze as it was pushed out of dormancy.
Rain has been in the forecast for some time, but the weather models have waxed and waned a little on where that rain might fall, and how much would arrive. We have started this week with a clearer picture of lower temperatures and rains to come with it.
Initially, coming out of the dry weekend, prices had rallied. They were also supported by news of a significant sell down in grain futures which has left the market vulnerable to a sharp buying correction if triggered by something like disappointing rains. However, confirmation of a change in the weather patterns in the next couple of days was enough to deflate the balloon and let futures resume their downward move.
The expectation is that wheat futures will hold above previous contract lows in the short term. Any disappointment with rainfall distribution and amounts in the next week or so is likely to help with that, and possibly generate a short term rally.
Longer term we should see some up and down movement in prices through April as the northern hemisphere season shows its colours, in both the US, and elsewhere in the EU and Black Sea. Once the season appears to settle down, we will see the market grind towards its seasonal low sometime in the June to September period, depending on how it pans out.
There is no doubt that a couple of good, timely rainfall events in the US will be negative for wheat futures. We are also seeing the big rains in eastern Australia being reported as setting up soil moisture levels for the Australian season, and general reports are suggesting that the crop in the EU and Black Sea is emerging from winter without too many issues.
That is a theme which will begin to set the market up for its midyear seasonal downturn. It has to be our expectation, until we know different, that wheat futures will drift into a period of lower prices midyear.
The opportunities for us for both old and new season wheat pricing will be driven by fluctuations around short term weather commentary, US export numbers (and therefore stock levels), planting intentions for spring crops, and new season production estimates.
One factor which may prove to be a positive for wheat prices, and allow a floor to be put in place at levels above current contract lows, is a sharp addition to the net sold position for the funds in the last week or so. Some are thinking that the selling has been overdone and that it may trigger a sharp rally if the positions are unwound.
The large sold position, combining with any weather concerns, is where opportunities for pricing Australian wheat may come from as we go through the northern hemisphere growing season.
