The wheat market is now beginning to focus on the Canadian and Australian seasons. Harvest is still under way elsewhere, but the US harvest is nearly finished, and the results for the EU and Black Sea are well understood by now.
While the final size of the massive Russian crop is still unknown, the feeling is that there is a logistical limit to how much Russia can supply to the global market in any one year. So, even though production estimates are still being ramped up, the additional tonnage may not have an immediate impact on global markets.
In Europe the issue is about quality, after late rains damaged a lot of the higher protein wheats produced in Germany. This comes on top of the failed spring wheat crop in the US, which is also high protein.
Against this background, CBOT wheat futures have plunged to new contract lows, and in A$ terms have traded very close to the levels we had in late November last year. Wheat futures often struggle at this time of year because of the impact of the Russian crop hitting global markets. We also have the US corn harvest about to get under way, which can also impact wheat when wheat needs to compete with corn into feed rations in the US.
So, we cannot be sure that the fall in wheat prices is over yet. If corn remains under pressure, that is likely to flow over to wheat futures as a well. We will also need to see signs that Black Sea wheat cannot fill all of the immediate demand from major importers, with some tonnage going to the European exporters and possibly to the US.
However, in most years, if the low is not set in August, it tends to happen in September, before prices begin some sort of recovery.
That is where the focus will shift towards Canada and Australia. The Canadian crop has been impacted by wet conditions in northern areas, and dry conditions closer to the drought areas of the US. The current estimates from the Canadian Farm Ministry put their crop at a five year low of 27.3 mill t, down 1.1 mill t on their last estimate.
Here in Australia the season has improved across Western Australia and South Australia, and continued in good shape in Victoria. NSW remains the pressure point, particularly in the north. This extends into Queensland as well.
Until we see what spring holds for us, there will remain some uncertainty about the size of our crop, and whether current estimates have to be wound back much or not.
Limits on how much wheat Russia can physically export, and pressure on the size of the Australian and Canadian wheat crops, will help this market stabilise and drift higher. That leaves us with an expectation that CBOT futures will show a year on year improvement by the time we get to our own harvest.
One issue is that the Australian dollar is running about 5 US cents higher than in November last year. That will make it harder for the A$ value of CBOT futures to show a significant lift year on year. The currency is taking about A$13 per tonne off the value of CBOT futures.
December futures are trading 40 USc/bu above the levels of late November last year. In A$ terms the advantage is cut down to A$6.25 per tonne.
