Chicago Board of Trade wheat futures have been in a holding pattern since bottoming out early last week. For over a week the daily closing price was between 556.25 USc/bu and 562.25 USc/bu. The wheat market joined other markets in shaking off further downside from the coronavirus outbreak, but now needs a new driver to move one way or the other.
In global export markets the volumes of exports have continued to be strong from the EU and Ukraine, while Russian volumes remain low. EU exports are running 65 per cent ahead of last year at the same stage of the marketing year.
In Russia, farmers have been reluctant sellers, forcing Russian exporters to miss out on some export opportunities. Russian wheat prices have been rising as a result, but in the past week the first price declines since November were recorded.
It might be Russian farmers that set price direction in the near term. If they become more active sellers it will pressure Russian prices further and is likely to spill over to international prices as Russian traders try to move grain into export markets.
Although new season global production remains hard to predict for 2020, so far, the new season crop in Russia has faced few challenges, with little winterkill. As well there is a large planted area. This is why some think that Russian farmers will have to move to sell old season wheat soon.
However, the winter isn't over yet and there is still potential for winterkill damage to the Russian crop from colder conditions expected over this past weekend. As with all incidences of winterkill though, any damage is not able to be assessed until dormancy breaks and the growing season gets under way.
Meanwhile, after recovering from multi-year lows, the Australian dollar slipped in value against the US dollar at the end of last week. At 66.77 US cents, there are only three months with a monthly closing price below this level since August 2003.
That provided a further boost to the $A value of CBOT futures, improving the buffer that March futures holds above $A300 a tonne. New season futures (December) started this week above $A314/t.
Some growers are still active in the swap market, locking in the $A310 base (and higher). If basis comes in at $20/t when they sell their physical wheat and close out the swap, the final price will be $330/t or higher.
If we move away from drought impacted yields, a price at that level will deliver a strong return from growing wheat in 2020 in all port zones. The risk is that the market won't hold at these strong levels into our harvest.
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