Wheat Surges Higher!
Over the last week we have see the wheat market rally dramatically. The futures market has risen from 510.4c/bu to 564c/bu, a change of 11% in the last 7 days of trading. In this rallying market basis has held, meaning the cash prices in South Australia has generally moved 1 for 1 with the futures market. As of Tuesday, prices were $283 for new crop wheat in OH/PLO/PT Giles and $278 Wallaroo.
New crop wheat decile currently sits at 7.6, however, after last nights rally we could expect a $5-$7/MT rally in prices and accordingly decile 8 prices for the first time since July 2017. Technically, the futures market has rallied to its highest level since the start of August last year. Fundamentally, weather concerns in the US, Australia, Argentina and Russia are noteworthy. As of yet nothing has materialized as a production issue and the global trend of large wheat stocks looks likely to continue.
US- The weather forecast for the US looks relatively wet compared to the last few months. Over the last month we have seen the US crop condition has begun to stabilize and tend upwards. Important to note is that the Kansas futures contract has not broken its long-term resistance and sits just below that level. The majority of the production issue in the US is focused around this Kansas wheat. New to the news feed is the delay in seeding of the US spring crop. As of Tuesday, seeding progress is 10% compared to the 5-year average of 36%. Delays have been caused by excessive rainfall through spring wheat growing regions. This is expected to change over the next 10 days.
Australia- As mentioned previosuly basis has remained strong between 30c/bu and 40c/bu. Basis is expected to remain at relatively strong levels with a dry outlook forecast for the start of seeding. As of April, the majority of South Australian growing regions have only received 50% of April average rain fall. Until this changes basis is likely to continue to firm. A small front is expected Wed/Thus this week, and another expected for the weekend.
South America- The EU model’s 10-day outlook is below, and clearly too much rain will fall across Argentina and too little across Brazil. As of last week, Argentina’s corn harvest was 31% complete. Soybean harvest was 54% finished. The remainder of harvest will be slow by excessive rain. Drought deepens across the whole of Brazil’s safrinha corn belt. For the next week at least, this trend is expected to continue.
Russia-Recently rumours have emerged of dryness through Russia. As the case with most closed off economies true and accurate information is hard to find. However, this time of the year is when the spring wheat crop is sown (which makes up approx 40% of Russian wheat production) and correlating with these rumours has been the increasing black sea FOB prices.
AUD-has been falling over the last fortnight, adding to the rallying futures market. Strong US growth expectations and ongoing debate of 2 or 3 FED rate hikes this year has kept the USD firmer compared to the AUD.
Recommendations-At this stage the US Wheat futures are trending up strongly, prices have broken previous highs set in early March. A firm basis is expected to prevail in the short term if Aussie conditions remain dry. The AUD has fallen 3% in the last week and looks set to break long term lows. The futures market rally at this stage has momentum as the Funds unwind their short positions as there is enough speculation surrounding northern hemisphere spring wheat crop and southern hemisphere winter wheat crop. Currently, we have recommended sales around the 5%-10% of estimated conservative production. With prices now entering strong decile (8) territory, now is a good time to consider increasing your forward sale levels. Growers have 2 main strategies to consider when to do this; 1. Continue to make small incremental sales and average up prices as this market trends upward. Currently cash prices are historically strong, and these are worth consideration. 2. The second option is to continue to stalk this market in the short term and when this strong rally loses steam/breaks, look to act quickly. Keep in mind when these trends break they often break very quickly!
Over the last week we have see the wheat market rally dramatically. The futures market has risen from 510.4c/bu to 564c/bu, a change of 11% in the last 7 days of trading. In this rallying market basis has held, meaning the cash prices in South Australia has generally moved 1 for 1 with the futures market. As of Tuesday, prices were $283 for new crop wheat in OH/PLO/PT Giles and $278 Wallaroo.
New crop wheat decile currently sits at 7.6, however, after last nights rally we could expect a $5-$7/MT rally in prices and accordingly decile 8 prices for the first time since July 2017. Technically, the futures market has rallied to its highest level since the start of August last year. Fundamentally, weather concerns in the US, Australia, Argentina and Russia are noteworthy. As of yet nothing has materialized as a production issue and the global trend of large wheat stocks looks likely to continue.
US- The weather forecast for the US looks relatively wet compared to the last few months. Over the last month we have seen the US crop condition has begun to stabilize and tend upwards. Important to note is that the Kansas futures contract has not broken its long-term resistance and sits just below that level. The majority of the production issue in the US is focused around this Kansas wheat. New to the news feed is the delay in seeding of the US spring crop. As of Tuesday, seeding progress is 10% compared to the 5-year average of 36%. Delays have been caused by excessive rainfall through spring wheat growing regions. This is expected to change over the next 10 days.
Australia- As mentioned previosuly basis has remained strong between 30c/bu and 40c/bu. Basis is expected to remain at relatively strong levels with a dry outlook forecast for the start of seeding. As of April, the majority of South Australian growing regions have only received 50% of April average rain fall. Until this changes basis is likely to continue to firm. A small front is expected Wed/Thus this week, and another expected for the weekend.
South America- The EU model’s 10-day outlook is below, and clearly too much rain will fall across Argentina and too little across Brazil. As of last week, Argentina’s corn harvest was 31% complete. Soybean harvest was 54% finished. The remainder of harvest will be slow by excessive rain. Drought deepens across the whole of Brazil’s safrinha corn belt. For the next week at least, this trend is expected to continue.
Russia-Recently rumours have emerged of dryness through Russia. As the case with most closed off economies true and accurate information is hard to find. However, this time of the year is when the spring wheat crop is sown (which makes up approx 40% of Russian wheat production) and correlating with these rumours has been the increasing black sea FOB prices.
AUD-has been falling over the last fortnight, adding to the rallying futures market. Strong US growth expectations and ongoing debate of 2 or 3 FED rate hikes this year has kept the USD firmer compared to the AUD.
Recommendations-At this stage the US Wheat futures are trending up strongly, prices have broken previous highs set in early March. A firm basis is expected to prevail in the short term if Aussie conditions remain dry. The AUD has fallen 3% in the last week and looks set to break long term lows. The futures market rally at this stage has momentum as the Funds unwind their short positions as there is enough speculation surrounding northern hemisphere spring wheat crop and southern hemisphere winter wheat crop. Currently, we have recommended sales around the 5%-10% of estimated conservative production. With prices now entering strong decile (8) territory, now is a good time to consider increasing your forward sale levels. Growers have 2 main strategies to consider when to do this; 1. Continue to make small incremental sales and average up prices as this market trends upward. Currently cash prices are historically strong, and these are worth consideration. 2. The second option is to continue to stalk this market in the short term and when this strong rally loses steam/breaks, look to act quickly. Keep in mind when these trends break they often break very quickly!
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