The rally in wheat prices held last week. While we did not post new highs, the close last Friday night was the second highest close for the rally.
Early last week the bubble seemed to burst when the US Attaché in Australia lifted our production estimate to 27 million tonnes. This is a little above the current ABARES estimate, and 1mt above the current official Unites States Department of Agriculture estimate being used in their global balance sheets.
However, we continue to see a raft of forecasting agencies reducing production estimates from a lot of countries, and primarily focusing on key exporting regions like the European Union, Black Sea and the US. The International Grains Council was the latest agency to reduce global estimates last week.
As well, Egypt paid a higher price for Russian wheat in their latest tender, and China is reportedly releasing grain stocks, including wheat, to cover feed demand. Severe flooding in China may lift their requirement to import corn.
One area that the market continues to focus on is Russia, where variable yields from their winter wheat harvest are still coming in below expectation overall. Hot and dry conditions in some spring wheat areas continue to keep the focus on Russian production estimates.
We are also seeing interest in the prospects for spring wheat crops in the US, Canada and Europe to see if they will be good enough to cover for Russian issues, and in fact help claw back ground lost from winter crops.
Here in Australia the mood seems to be optimistic about this season. With drought areas in NSW now showing average to above average rainfall for the past nine months, it is being assumed that the country as a whole is having a good season, and that production will bounce back sharply.
Victoria is also showing good rainfall over the past nine months, and had a much better season last year as well.
However, Queensland, SA and WA are not enjoying the same good seasonal conditions. Parts of SA are on track to have one of their driest Julys on record. In WA it is only an area north of Esperance that has enjoyed good July rainfall to date.
In terms of the April to July winter growing season, the central west of NSW is doing well, and a lot of the rest of NSW, Victoria and eastern SA are within 80 per cent or better of average rainfall.
The rest of the cropping belt is in a rainfall deficiency, and without a significant change to the season, Australian production prospects will not be held up by NSW and Victoria on their own.
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