THE wheat market took a hammering last week as futures prices fell to new contract lows.
The focus is moving from December futures to March futures, and it looks as though March is falling to the old December trading range of US390 cents a bushel to US425c/bu.
The US has large stocks of winter wheat to move and prices came under pressure, although higher protein spring wheats held up better against global shortages of better quality milling wheats.
We also had a surging US dollar putting pressure on US dollar denominated commodities.
Weather issues in the US also began to take a back seat with snow falls predicted, to provide protection for their newly emerged winter wheat crop.
Snow coverage will go a long way to offsetting concerns about dry conditions heading into winter.
There was also speculation about the size of the Australian crop with most production forecasts being lifted.
While not all are pushing for a new record, many are, with some suggestions that our wheat crop might hit 31 million tonnes.
This will simply add to global supply numbers that are already in surplus.
The strength in the US dollar was also seen as hitting exports, with weaker export numbers coming through for the US adding to the downward price pressure.
In the end, we did see some recovery on Friday night as profit taking and short covering entered the market.
The speculative funds now have very large net sold (short) positions in the market, and if a trigger occurs, could result in a wave of buying as speculators exit those positions.
This is the most likely source of a rally in US futures that may support our own cash market.
Here in Australia the cash market also eased with some variation between port zones.
Prices have moved to new lows in NSW and Victoria, and have tested previous lows in South Australia, just as more wheat begins to flow into storage.
With big yields and low prices a lot of grain is being held back on farm.
Other grain is being warehoused in third party storage.
While some wheat will be sold for cashflow, many growers are using pulses and canola to generate immediate cashflow, and are prepared to wait it out on some wheat at least.
Grain stored on farm will be able to avoid the accumulating BHC storage fees, but if everybody tries to eventually move that grain into the domestic market or the container market, there is likely to be too much.
Some wheat will have to enter the bulk export supply line.
Grain already warehoused will be accumulating costs, but is also well placed to be sold at short notice if there is a price rally.
In both cases large supplies of unsold wheat will hang over the different markets in Australia, and will limit the extent of any upside in prices.
Aggregate holding back of wheat may well put a floor in prices now, but it will also cap the extent of any upside in the near to mid term.
As northern hemisphere crops enter dormancy, the futures markets will focus on exports from the US, EU and Black Sea, and the size of the Australian crop.
Although there will be a monthly US Department of Agriculture (USDA) report this week, it probably won’t contain a lot of new numbers.
The next report the market will focus on will be the January report.
