The week leading into the Easter break was not good for CBOT wheat futures values. For the week, May futures prices fell by 20.25 USc/bu, or $A9.62 a tonne. In turn this put a little more pressure on Australian old season cash prices.
Sitting behind the decline are the projections for another huge Russian wheat crop, as their crops respond positively, once again, to the effects of another mild winter. As someone commented, Vladimir Putin is just loving the impact of climate change!
It is unusual for wheat futures to look as though they might challenge the lows set in March, but right now that is on the cards as the May contract heads down. At this stage May futures are still 15.75 USc/bu above the closing low set on March 11 in the US. However, there are only three days where futures closed below the levels seen at the end of last week, and in $A terms there is only one trading day when futures have closed lower than the lowest daily close seen last week.
What is interesting in the Australian market is that while old season cash prices have come under a little bit of pressure, new season prices lifted strongly last week despite the weaker lead from Chicago.
That means that basis levels have increased sharply, with our market seeming to recognise that there are real risks associated with our ability to rebuild production in Australia this year. Even in the more conservative Port Adelaide zone, where forward prices did not increase, basis levels were up because of the fall in CBOT values, and sat at over $A50/t at the end of the week.
It is very early in our season, and while everyone likes a good rainfall event in April, the break to the season in southern winter rainfall fed zones is often closer to the middle of May. It is just that we have a heightened level of nervousness because it is just so dry in southern producing regions, while the northern NSW and Qld cropping areas failed to build their normal profile of soil moisture over summer.
It looks as though the Australian market will stay on notice until we see a significant shift in weather patterns that allows the formation of winter weather systems.
As usual a lot of the crop will be planted dry, so that if rains do arrive in May the season will very quickly settle back to one with normal production potential. That should cap the enthusiasm for further gains in our forward market, but basis levels are likely to remain high until the season develops to the point where a recovery in production is all but assured.
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