WHEAT has tried to continue to move to new highs, but by the end of last week had failed to move above US437.5 cents a bushel.
Rather than continuing to push higher, the market tested support at US419.5c/bu.
That left us with some uncertainty as we began this week.
Although the market has tried to go higher on the back of weather risks in the northern hemisphere, higher prices for Russian wheat in recent export tenders, and from the threat of buying from funds who are heavily sold, the market has failed to push to the highs seen in October.
We have pulled up about US10c/bu below those levels. One problem is that the recent rally in US futures has once again pushed the price of US wheat to uncompetitive levels.
When the market senses that, the sheer weight of US and global wheat stocks seems to take over as the main driver, pushing prices down again, even if there is support from currency moves or from weather concerns in key parts of Europe and the Black Sea.
The positive has been that January has had a higher trading range than December, but not enough to make a lot of difference to the cash market facing Australian growers.
Our cash prices might be above harvest lows seen in December, but for most growers they are simply too low to be attractive for making further sales.
We now need to see if the US futures market will hold, and retest the recent highs, or whether it will turn lower during February and keep the whole wheat price structure under ongoing pressure.
The good news might be that there is little reason for the market to set whole new lows at this time of the year, so that should see futures hold at the December low of US392.75c/bu.
In the short term, wheat is likely to face a headwind unless there is a big weather risk premium built into prices on the back of the next round of cold weather across the US, Europe and the Black Sea.
The problem seems to be that US wheat keeps pricing itself out of the market every time it rallies.
In the short term, we also need to see Russia move its record crop.
Prices for Russian wheat have lifted because of a stronger rouble, but that does not alleviate the need for strong exports in the near term.
One suggestion is that their traditional markets in the Middle East and North Africa are not large enough to soak up the supply, which may see them try and push into markets that we might normally sell to.
In the medium term there is probably more potential for prices to firm a little, ahead of knowing for sure what the northern hemisphere season will deliver.
The extent of any rally will be determined by short term weather issues.
By the time we get to late June, the market will be responding to the actual results from this year’s northern hemisphere wheat crop, and prospects for the US corn crop.
This is when the International Grain Council’s projected 17 million tonne drop in global production will be confirmed or not.
If global production does pull back by that amount, stocks outside of China and the US will tighten significantly and open the way for a long awaited price recovery cycle.
