Last week the wheat futures market was sitting around 500 US cents a bushel, finding support against the previous two lows set over the past few months. At the same time the Australian dollar had failed to sustain a move above 70 US cents.
If both of these levels in their respective markets were to hold, it would have been able to support the $A value of Chicago Board of Trade wheat futures, and possibly opened up the way for a short-term price rally.
The Australian dollar has since eased a little, so that has not been a problem for us, but unfortunately futures failed to hold above support and are now heading lower. Since June 4 there has been a sustained decline from over 525 USc/bu, almost down to 475 USc/bu on the July contract.
The next low on the July chart is 468 USc/bu set back in September last year. That pretty much matches the low seen in May last year as well. The market will be in trouble if this support level does not hold, with potential for nearby futures to decline to 450 USc/bu and then to 425 USc/bu.
In recent years, CBOT futures have rallied during June and sometimes well into July. This year's rally occurred much earlier, in March, and since then we have lost around 100 USc/bu from the price base. In $A terms that has been close to $50 a tonne.
The Australian market has responded as well, with $30/t coming off Port Adelaide export based prices for new season wheat, while Newcastle based new season prices have shed $50/t in response to the drop in CBOT values, and the improved prospects for this season.
WA new season prices have fallen from $350/t on March 20, down to $300 at the end of last week.
Over the decades, mid-year has traditionally been a period of price weakness as the northern hemisphere harvest gathers pace, putting new supplies into global markets, and putting prices under harvest pressure.
That has not been the pattern in recent years, and despite there being multiple weather issues across the northern hemisphere, these have not been enough to trigger a price rally, or dent the forecast size of the global wheat crop.
Australia is a contributor though, with a potential 10 million tonne lift in the size of our crop over last year. After three years of drought our exports have been wound right back, and so this year's much larger crop will need to find a home in export markets, against other exporters who have moved into our regular markets.
How aggressive Russia will be in export markets remains the key to 2020 pricing.
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