Chicago Board of Trade December wheat futures have traded in the 650 to 700 US cents a bushel range for the week ending last Friday. The lower end of the range represents the latest nearby low, and the upper end of the range is at a level that the market had stalled on at that stage.
The end of the week saw the United States and Canada facing a very hot few days with little rain in sight. This was supportive of prices for wheat, corn, canola and soybeans, with all crops vulnerable to dry conditions combining with excessive heat.
Not that this spells disaster for these crops. There is plenty of time for good rains to arrive and result in excellent yields. It's just that in the meantime, the market is prepared to rebuild risk premiums.
This week is critical. If the hot weather extends for longer, or has done damage over the weekend, we should see prices push higher, and that will put them into the territory of challenging the May highs. To do that though, will require at least another 70 USc/bu, and that remains a big ask.
Any sniff of rain and/or return to cooler temperatures will see risk premiums pull back, unless the batten is handed to another critical region in the global grain production circle.
Here in Australia, we have just seen rainfall over western cropping areas in NSW, but the mouse plague is continuing to cause concerns. It is hard to believe that the mouse plague won't have an impact on production in the end.
For May we saw good rainfall totals in WA, and average to just below average in NSW. The dry areas are SA and Victoria.
The forecasts for this week are more positive, with rainfall expected right across the Australian cropping belt, with the exception of the Mallee areas of Victoria and SA.
Herein lies the problem. All we need is some rainfall in key North American states, combining with reports of good rains in Australia (particularly the big states of WA and NSW), and we could easily contribute to a sharp pull back in global wheat prices.
Failure to take out the May high on this current run-up in prices will probably signal that we have seen the highest prices for the year, until we get late in the year when natural carry costs for the northern hemisphere harvest put upward pressure on prices.
What is clear is that Australian farmers have had an excellent opportunity to capture strong price levels in this year's forward market, particularly for those who are able to use derivatives (futures, options or over the counter swaps).
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