A SHARP drop in the Australian dollar has combined with a lift in Chicago Board of Trade (CBOT) futures to deliver the highest Austrlaian dollar value of December futures since late August.
This is at least a little bit of good news as we begin our own wheat harvest, and should push cash prices to the top of their expected harvest trading range.
The Australian dollar rallied ahead of the US presidential election, and closed above 77.5 US cents as the election got underway.
Since then the US dollar has moved to new 14-year highs, and the Australian dollar has pulled back by more than US3.25c.
For much of the time the higher US dollar has pushed commodity prices lower, with wheat futures trading down to the bottom of the recent trading range.
Last Friday we had a recovery in futures prices, coinciding with another fall in the Australian dollar, to sharply reverse the move lower in the Australian dollar value of CBOT December futures.
We have started this week with December futures at $204.30, which is the best value for the contract since August 26.
That is enough to push Australian cash prices to the top of the recent trading range, and towards the top half of the expected harvest trading range.
The support to wheat futures at the end of last week came as concerns increased about the quality of the Russian crop this year.
Despite the record production levels achieved by Russia, the proportion of wheat hitting milling grade was down sharply.
It is felt that the limits on milling grade wheat will begin to squeeze Russian exports, opening the way up for other exporters, including the US, to fill importer demand.
At the same time the ability of the main EU exporters to lift their sales is also being hampered by their own quality issues.
US wheat has had to face the issue of the stronger US dollar, but the recent drop in futures prices driven by the currency moves has helped to keep US wheat competitive in global markets.
Importantly, US corn is also competitive, which will also support wheat prices.
The current low wheat prices are also impacting grower planting decisions in the US, with key forecasters lowering their estimate for planted winter wheat acres in the US this year. This is likely to cap total US wheat production in 2017.
So far the sentiment for wheat has remained quite negative, with speculators building a large net short (sold) position.
As demand prospects for US wheat improve, some of those sold positions are being bought back.
This is where the short-term boost for futures prices has come from at the end of last week.
The best prospects for ongoing price support will come if speculators continue to buy back sold futures, against any potential support for wheat, including smaller projected crops for 2017, increased export demand for US wheat, and weather concerns as the next northern hemisphere crop moves into and then out of dormancy.
A sustained lift in wheat prices into our 2017 harvest is only likely if global production, and in particular production in the Black Sea region and the US, is curtailed enough to begin pulling back on global wheat stocks.
In the meantime we will have to rely on price spikes triggered by short term supply and demand prospects, and fuelled by speculative buying.