The hedging window for next season is closing for wheat, and at current levels, there are probably not too many growers rushing to do anything. Canola has found some strength in recent times and defied wheats’ drift lower.
The
depressing factors for wheat prices keep coming. While prices have been dragged lower by corn,
wheat has had its own bears coming for it over the past fortnight.
There was
little to move the market in the World Agricultural Supply and Demand Estimates
(WASDE) report, as the market awaits the new season data coming in April. The news from China about delayed and
cancelled shipments is obviously bearish, as is the constant news about strong
supplies and falling prices in the Black Sea.
Figure 1
shows wheat is now at a 3.5-year low of 530¢/bu. In our terms, at the current exchange rate,
this comes to just under $300/t. This
price level used to be a sell every day of the week for local wheat
growers. But cropping has become a lot
more expensive, both here and overseas, with plenty of talk around about
current prices being under the cost of production.
From a
charting and fundamental perspective wheat should be finding some support
soon. If not to see prices rise, at
least to see them steady. The cheaper
wheat is, the more will be used in livestock production, thereby decreasing
stocks.
Canola has
been rallying lately thanks to strength in the oilseed complex. Figure 2 shows both ICE Canola and MATIF
rapeseed futures have rallied strongly in recent weeks. ICE canola, which tends to drive our GM
Canola market, is up $55/t from the lows of late February to $707/t. MATIF Rapeseed, which drives non-GM Canola
has rallied around $40/t to $726/t.
Fundamentally
not much has changed for oilseeds, but there has been some speculating that the
sharp falls over the past six months might have made oilseeds too cheap. With northern hemisphere crops on the cusp of
sowing, it’s probably not surprising to see selling dry up too.
What does it mean?
The bounce in canola probably still won’t encourage too much selling locally, with crops yet to go in the ground, and still plenty of time for hedging on weather issues in the northern hemisphere. Growers would no doubt be pleased if we have indeed seen the bottom of the market.
For wheat, its bounce is yet to come. While bad news keeps coming prices wont get better. There will come a point, however, where short covering kicks in, and we see a rally. Whether or not it will be sustained depends on the weather in the northern hemisphere.
Key Points
- Wheat prices have been easing, while canola prices have been stronger in recent weeks.
- Short covering is helping support canola, while continued bearish news depresses wheat.
- With increased costs of production, some expect markets to be approaching lows.
Click on figure to expand
Click on figure to expand
Data sources: ICE, Matif, CME, Mecardo
