Futures bright for wheat markets

December futures started this week at A$289.78 per tonne, the highest level for a nearby futures contract since May 12.

The nearby contract last traded above A$300 per tonne in April this year.

In US dollar terms, the market has returned to challenge the highs set in late March, and then back in December last year.

On the long-term weekly chart of nearby futures prices, last week's closing price was the highest weekly close since July 2015.

The current volatility is showing us the fickle nature of the wheat market at its best.

For the current season we have larger crops year-on-year in Australia, Russia and Canada and estimates for all of these crops have been increasing in recent weeks - and adding to forecast global stock levels.

Even though China and India make up the largest components of estimated global stocks, excluding those two countries from the data shows that wheat stocks are very close to unchanged year-on-year.

This is reflecting the smaller crops in the US and particularly Europe - as well as Ukraine.

There is also still room for the US Department of Agriculture's estimate for the Russian crop to lift and flow through to a further increase in stocks being held outside of China and India.

Then we have the conundrum of China.

The USDA is saying that China's stocks will lift to 163.68 million tonnes, up from 151.68 million tonnes 12 months ago, and yet their wheat imports are on track to be their largest since 1995.

How can that be?

We do know that the pork industry in China is undergoing significant change.

Pig numbers have been reduced sharply because of African Swine Fever. But as China rebuilds its herd, it is also moving away from using waste food as feed - and replacing it with grains.

Meanwhile, with some aspects of the global balance sheet appearing to be unchanged, the market is also focusing on the 2021 winter wheat crop being planted now.

The US acreage is set to increase, but parts of its winter wheat areas are dry.

It is similar in parts of the EU, particularly France, as well as in the Black Sea.

So, we have a market juggling the outcome of the 2020-21 season, where stock levels are not under pressure, and expanding on some measures, against the establishment of the 2021-22 crop in the northern hemisphere.