The upward trend in wheat futures continued last week, fuelled by some speculative buying ahead of the USDA Quarterly Stocks Report, and some concerns about the dry weather in Australia and in parts of the US winter wheat belt, where planting is under way.
However, even though the upward trend remained intact, the market peaked on Wednesday night last week, and then fell on Thursday and Friday nights. One reason was the eight-day forecast pulling rain into dry areas of Queensland. Not that this will help the wheat crop, but it does begin the process of building a moisture profile for summer crops.
The bigger hit for prices came on Friday night, after the USDA reports were released. The problem for wheat was the unexpected size of the spring wheat crop. Production estimates came in 22 per cent under last year because of drought, but this was still better than the trade had been expecting.
The bigger than expected spring wheat crop pushed spring wheat futures sharply lower, dragging CBOT soft red winter wheat futures contracts lower as well. However, the size of the US winter wheat crop was lowered more than expected, but not by enough to cancel out the lift in spring wheat.
Pressure also came onto wheat futures from a larger than expected figure for wheat stocks in the US at the start of September, indicating that maybe use has not been as large as expected.
In Australia we have also seen wheat prices peak in the last week. New season prices peaked at just over $270 a tonne in the Port Adelaide export based zone. In the northern part of the Newcastle zone prices were closer to $345/t port basis. By Friday prices had pulled back by $10 to $12/t.
The price decline seemed to coincide with the forecasts for rain in the Darling Downs region. Also, harvest is under way in Queensland, and some growers in northern NSW were reported to be interested in making sales at last week’s highs.
The current supply issue is for feed grain in the northern consumptive market. If there is enough rain to trigger an early sorghum planting, new supplies of feed grains will enter the market in early 2018.
As well, grain prices in South Australia had moved well ahead of export parity. Prices were being set at around levels that should see grain move from South Australia to northern NSW and Brisbane. However, anyone buying at last week’s prices who were not executing into that domestic market would have very expensive grain needing to go into the export supply chain.
Australian grain prices in all port zones are too high relative to prices being paid by major importers in the global market. At some stage prices in the Port Adelaide zone will have to reset at export parity levels. If northern NSW and Queensland prices don’t adjust at the same time, southern grain will appear very cheap, and significant movements will take place, eventually pulling northern prices back down to simply reflect the freight cost above export parity from Pt Adelaide.
It is possible that some grower selling last week in both northern and southern markets began the process of pulling Australian cash prices into line with global markets. Any decline in CBOT futures will remove some support from the price base as well.