Bare in mind though, the fundamentals haven’t changed. Wheat, especially milling wheat, is getting tight. A broader downturn in commodities this week was the catalyst for speculative investors to lock away some profit. Gold, iron ore and crude oil all fell sharply as did most stock exchanges around the world on the back of weak economic data out of the US and China as well as surging COVID cases in Japan and Australia.
The question is how high can this market go? After last week, my gut feel was there was more upside but it was not infinite. Major exporter stocks are getting tight and that will add support to wheat prices until inventories can start to rebuild. Certainly, from a demand perspective, Australia is in the box seat in terms of supplying wheat and barley to the SE Asian buyers – which is a market we had lost some market share to the Canadians and the US during our drought years. The Middle East is another market that Australia should be well positioned to participate in. The fact that Canadian supply of high protein wheat will be short, is already seeing demand swing to Australia and the US for replacement origins. There will however, be a point that buyers slow down purchases because of price.
Europe is also having a horrid run with harvest weather. Already 25-35mm has fallen over France and Germany in the past week with more forecast to come. There are concerns that this will inevitably lead to low test weights and falling number issues.
The cash basis will have to do some of the heavy lifting if prices are to improve. As it stands, the cash basis in most port zones is heavily negative. This is because we are currently not seeing huge demand for new crop and the trade know there is a big crop coming (combined with some carryover old crop still available in WA and NSW). It may just take some time for this to flow through.
Post USDA blues
Bare in mind though, the fundamentals haven’t changed. Wheat, especially milling wheat, is getting tight. A broader downturn in commodities this week was the catalyst for speculative investors to lock away some profit. Gold, iron ore and crude oil all fell sharply as did most stock exchanges around the world on the back of weak economic data out of the US and China as well as surging COVID cases in Japan and Australia.
The question is how high can this market go? After last week, my gut feel was there was more upside but it was not infinite. Major exporter stocks are getting tight and that will add support to wheat prices until inventories can start to rebuild. Certainly, from a demand perspective, Australia is in the box seat in terms of supplying wheat and barley to the SE Asian buyers – which is a market we had lost some market share to the Canadians and the US during our drought years. The Middle East is another market that Australia should be well positioned to participate in. The fact that Canadian supply of high protein wheat will be short, is already seeing demand swing to Australia and the US for replacement origins. There will however, be a point that buyers slow down purchases because of price.
Europe is also having a horrid run with harvest weather. Already 25-35mm has fallen over France and Germany in the past week with more forecast to come. There are concerns that this will inevitably lead to low test weights and falling number issues.
The cash basis will have to do some of the heavy lifting if prices are to improve. As it stands, the cash basis in most port zones is heavily negative. This is because we are currently not seeing huge demand for new crop and the trade know there is a big crop coming (combined with some carryover old crop still available in WA and NSW). It may just take some time for this to flow through.
The week ahead….
As I said at the start, the fundamentals for wheat haven’t changed, but the moves in this week’s market serve to remind us that nothing can be taken for granted.
Have any questions or comments?
Click on graph to expand
Data sources: USDA, Reuters, Argus Commodities
Categories
Have any questions or comments?
Riddle me this…
In the past week, the wheat market looked to have taken a breather from the heavy bearish trend that had set in over the past
Why are diesel prices smoking?
Australian diesel prices for farmers have reached their highest levels on record recently, but what has been the cause, and will the situation improve anytime
Demand dry in the hay market
Feed demand and hence prices can be looked at as a solid indicator of pastoral conditions, producer intentions, and of course availability. QLD hay prices
The sharks are circling
It was a bloodbath in the agricultural commodities last night, indeed the whole week. Since last Friday, Dec ’22 wheat has lost 139¢/bu or $62/t
Don’t have an account with us? Join free.
You can have full premium access to all of our content with a monthly or annual subscription.
Alternatively, create a free account to access our Insights blog and two free premium article a month!
Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
Research: Analysis of the Australian sheep flock
In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making.
SERVICES AND CAPABILITIES STATEMENT BROCHURE
We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.