The soft slide in Australian wheat prices stalled last week, with gains in prices in Vic and SA in particular. All port zones seemed to gain despite a modest drop in the A$ value of CBOT futures.
Cold, damp weather has slowed the harvest in the southern states over the past couple of weeks, and there may have been some jostling within the market to deliver against contracts at the end of November.
It could also be that the harvest is disappointing in some places because of more extensive frost and drought losses than expected, and lower acreages to harvest because of the large areas cut for hay.
Anecdotally there are certainly some growers who have completed their wheat harvest well ahead of normal because of a combination of factors, despite the less than ideal harvesting conditions over the past two weeks.
As we enter December, we are either through the peak of the Australian harvest, or about to get there. Unless we fail to get enough good harvesting weather, we know that the bulk of harvest will be over by Christmas.
It may be fair to speculate that we won’t see too much more downside from here unless last week’s price support was almost entirely driven by harvest delays and the need to fill contracts at the end of November.
Even if last week’s gains were driven by immediate, short term factors, it is hard to see why Australian wheat prices will move sharply lower from current levels, given the strength in prices seen to date.
Even if the price decline does resume, why will it continue for long given that the harvest will be all but over within two to three weeks?
While there is no doubt that Australian wheat prices remain at strong premiums to US futures prices, and to other global prices, the market overall remains convinced that demand for US wheat will have to pick up, and with that will come price increases that will lessen the apparent premium held by our market.
As long as it unfolds that way, it will become a supportive factor for our market, and reduce the risks for those who have decided to delay selling wheat for whatever reason.
The first three to six months of 2019 could be interesting. It is easy to build a scenario where demand for US wheat is building, at the same time that concerns about the new northern hemisphere crop are bubbling along.
With the assumption that Russian wheat stocks will have been depleted, and that US wheat stocks will also be in decline, the world wheat market will be focused on actual production in 2019. That should bring some support for wheat prices until the 2019 crop is seen with some certainty. At the very least it should trigger a degree of price volatility as expectations about the crop wax and wane against unfolding weather conditions.
Where prices end up at the end of 2019 is anyone’s guess, but we should see forward selling opportunities emerge in the first half of the year. The complication for Australian growers who use fixed price forward contracts, will be whether basis levels are attractive enough in that forward market.
An extension of the drought across eastern and southern Australia in 2019, or the risk of that happening, will make decision making about forward selling a little more complex next year.