US WHEAT futures have had support during the past week from problems with the Canadian wheat harvest, where wet weather has caused downgrading.
The current estimate is that 20 per cent of their spring wheat crop has been downgraded to feed quality as rains continue to delay the last of their harvest.
At this stage 80 per cent of the crop has been harvested, but as the process drags on, more and more of the remaining crop is being downgraded.
Despite the support, wheat values continue to stagnate, with the Australian dollar value of Chicago Board of Trade December futures hovering about $190 a tonne at the start of this week.
Fortunately, basis levels remain strong, so that the cash market in Australia is holding about $220/t in South Australia, and closer to $230/t to $235/t on the east coast.
Western Australian prices, which are free in store, are closer to $240/t.
These prices continue to suggest a $40/t drop from average harvest prices last year, which is a big price fall against the ongoing lift in global wheat stocks.
The price is probably being driven more by the lift in wheat stocks within the US, with US farmers bearing the brunt of the lower prices.
Grain growers in most other countries are being sheltered from the full downside in prices by currency moves. This is particularly so for Russian growers.
The latest reports from United Nations agency, the FAO, report grain prices at 10-year lows with little prospect for a recovery during 2016-17.
In terms of wheat, they highlight the lift in consumption of 15 million tonnes, driven by an increased use for feed.
This increase in consumption has out stripped the lift in production, but we are still being left with a 12 million tonnes lift in global stocks (FAO numbers).
This reflects just how strongly production has been growing over the past four seasons.
We should see the surge in global wheat production slow down.
Since 2012-13 global production has lifted by 86.13 million tonnes thanks largely to benign seasons globally, and more specifically, mild winters in key northern hemisphere countries, that have pushed production well above trend.
Basically a return to normal seasons should curtail the surge in output, while less than average growing conditions would produce a sharp decline in production from current levels.
What we don’t know yet is whether 2017 will be that year or not.
If we do see production issues emerge during 2017, it will probably not be until mid year that we see decisive upward price action.
That will be when we get the best view of the Black Sea crop, as well as what is happening in Europe and the US.
We might see some risk premiums build into prices during our autumn, particularly if the US winter wheat crop has issues, but the level of US and global stocks will probably limit how strong a weather driven rally can be until we get to the stage of a real decline in the global crop.
For Australian growers, the key pricing points will be harvest, autumn and mid year.
If harvest prices are rejected as being too low, the most likely post harvest opportunities will be on a weather spike during autumn, or a significant rally mid year if the global wheat crop comes under pressure, particularly in the Black Sea region.