From October last year to February, CBOT July futures traded sideways with 520 USc/bu being the base of the trading range. On continuous charts of the nearby futures contract, 500 USc/bu represented the low, while 525 USc/bu represented the high for the trading range during the second half of 2018.
Last week the futures market rallied sharply from around 480 US c/bu, to peak around the 520 USc/bu mark twice. On both occasions the market failed to push higher, and we closed at the end of last week very close to 500 USc/bu.
What we witnessed was the wheat market pushing towards the top of the trading range seen from August last year to February this year, but then failing to go higher. That is understandable because it would mean that nearby wheat futures would have to tackle the price levels seen during last year's price spike, which was driven by much more than crop issues within the US.
During the price moves of last week we saw futures settle at their highest daily settlement price since February, while in A$ terms it was the highest settlement price for a nearby futures contract since August last year.
From a chart point of view, the market did its work last week, taking wheat values back to the trading levels for much of last year, while falling short of entering the price levels occupied by the mid year prices spike in August last year.
Last year's price rally was being driven by multiple factors including drought in the US, drought in Europe, and reduced output in Russia driven by a more normal season and wet conditions in key Russian spring wheat areas.
This year the rally to date is being driven by the extraordinarily wet conditions hitting the US corn and soybean regions, but not much else. From that perspective it is hard to see why futures prices will readily punch above the levels already seen.
So, we come back to the theme that we need an additional driver to get wheat prices higher. It may come, but is not apparent as yet. The things to watch are dryness in Canada, some dry areas in Europe, and some dry areas in Russia and Ukraine. At this stage though, no news reports are showing exceptional concern.
Meanwhile the Australian market, both old and new season, is taking its lead from CBOT futures. The market did fall much further than CBOT fell when the lows were set in mid May, but that has corrected itself in the past week or so. So once again our cash markets are finely tuned between our own tight balance sheet, and the price direction coming from offshore.
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