THE fall in wheat futures continued last week, with another $15.07 a tonne being pulled off the Australian dollar value of December futures up to the end of trading on Friday.
If current values prevail into our harvest, the implied year-on-year drop in the price base for wheat will be $22.34/t.
The export based cash price at Pt Adelaide at the end of November last year was $275.50/t.
The current forward price for this season is about $261/t.
This $14.50/t implied year-on-year price fall is made up of an $13.37/t drop in US futures and an $8.96/t drop due to currency, partially cancelled out by a $7.83/t lift in basis.
Against current global wheat supply and demand projections, a year-on-year price fall in US futures of $20/t looks to be high.
The latest figures released by the US Department of Agriculture (USDA) show only a modest 2.56 million tonne lift in global wheat stocks year-on-year.
However, this was a 1.18 million tonne lift on the May projections, and was one of the contributing factors to the ongoing drop in futures late last week.
Behind the lift in stock estimates for 2014-15 was a 4.58 million tonne lift in global wheat prduction to 701.62 million tonne.
This will make this year's crop the second largest on record.
What is of interest is that last year's record crop only grew global stocks by 10.77 million tonne (despite a 56.66 million tonne lift in production that year), and this year's second largest crop on record will only grow stocks by another 2.56 million tonne.
So, despite record crops we are not seeing an explosion in the level of global wheat stocks, leaving the market finely poised for any production hiccups, either this year (Russia and Australia are the two countries to watch), or in the next couple of years.
Last week we also had the ABARES Crop Report released, which projects an Australian wheat crop at 24.588 million tonne, down 2.425 million tonne on last year.
The fall in output is largely projected for Western Australia (down 2.1 million tonne) and South Australia (down 766,000t).
Partially offsetting that is a lift for NSW of 638,000t.
In 2013-14 the export states of Western Australia and South Australia produced 15.628 million tonne, or 57.8 per cent of the national total.
This year the combined crop from the dominant export states is tipped at 12.762 million tonne, or 51.9pc of the total.
If the forecast El Niño bites into production in NSW and Victoria, there may be a drop in the Australian crop, but little impact on total exports if production in Western Australia and South Australia is not impacted as much.
This may reduce the impact on global wheat prices of a crop downgrade in Australia.
It may also mean that the price differentials between the two export states, and northern NSW in particular, continue to run at high levels, rather than reverting to a more normal export based price differential.
The fate of wheat prices globally is moving more and more towards the outcome of the Russian and Australian crops.
Drought risks linger in both regions.
Any significant pullbacks will not only bite into the global surplus between production and consumption, but also potentially pull back on available export supplies.
Malcolm Bartholomaeus is the market analyst for Bartholomaeus Consulting, Clare, South Australia.
