Wheat futures were down last week, but failed to revisit contract lows before rising sharply on Friday night. That has resulted in some welcome support for wheat prices.
At this stage, it still looks as though the lows seen last year were the multi-year lows, and while the expectation is that the northern hemisphere harvest will keep pressure on prices, this year’s low may even be in place already, if the April low holds.
We are now entering the make or break part of the year. About 80 percent of the time that wheat prices rally during the second half of the year, that rally has been under way from early June. Occasionally it does not manifest itself until July, but often the indicators are in place before that time.
With large wheat stocks in the US, and perceived large stocks elsewhere, no-one is forecasting a sharp price recovery this year, but the outcome of the season in the northern hemisphere remains a risk.
There are a few curious things unfolding. One was a sale of wheat from the US to Egypt last week. Firstly, the view had been that Egypt would rely on its own harvest for a while, rather than look for more imports at this time of the year. The second point is that they bought wheat from the US, with US wheat priced more than US$10 per tonne below Russian wheat.
This shows how competitive US wheat is at the moment, and that the Russians are either not competitive, or are not exporting aggressively at the moment. That seems a little strange given their large crop last year, and doubling of stocks over the last 12 months.
At the moment, not much is being said about the Black Sea region, but key analysts are continuing to lower production estimates for the EU. Europe has been hit by dry cold weather so far this season. Frosts hit France, Germany and Poland in April, and dry conditions have been a concern in France, the UK, Belgium and Spain.
While the total EU grain crop is still forecast to be larger than last year’s, estimates are pulling back on earlier levels, particularly for wheat and barley. Separate estimates for Germany are also being lowered on the back of cool weather, frosts, and dryness in a number of regions.
In the US ongoing rains and cool weather are also causing concerns about disease levels, and the early harvest. In reality, we won’t know the full potential of the US wheat crop until harvesters hit Kansas in a few weeks’ time, but probably the condition of the crop is still falling, rather than recovering from the setback a few weeks ago.
Probably all eyes should be on the Black Sea because that has been a trigger for every midyear price spike since 2007. An issue there, on top of the less than ideal conditions in the US and Europe, would support prices in the next few weeks.
So, at this stage of the season we should be looking at better prices for the 2017/18 crop than we have seen to date for last year’s crop. What we are waiting for now is whether the issues with the northern hemisphere crop will give us a forward selling opportunity worth considering. If one does not begin to appear during June, we will probably not get a reasonable opportunity this year.
