THE decline in the value of Chicago Board of Trade (CBOT) wheat futures has continued as we move into the early part of August.
The low in September wheat futures occurred back in April, when the market hit US430.75 cents a bushel.
We have had three rallies since that time.
The first one took prices to US474c/bu in early May.
The second hit US490c/bu in mid June.
The final rally was short and sharp, and went to US574.5c/bu in the first week of July.
The market then took about a week to decide that the latest rally was going to fail, and since then it has been pretty well straight down for nearly four weeks.
The decline has seen the market end last week with a low of US453.5c/bu.
The US450c/bu was an important level in the market from December last year, until June.
At times, it was a level that the market traded up to before pulling back, and then it became a level of support during early April.
During May the market traded above this level on a short, sharp rally, and then back below that level, and once again it became a price level for resistance until we saw the market gather strength in June.
We are now at the point where US450c/bu should become support in the near term.
The more pessimistic view would be that the market will ignore that price level and continue down to test the April (and contract) lows.
The fundamentals do not support a return to the April lows though.
Since then drought has gripped the spring wheat areas of the US and parts of Canada, and dryness has crept into parts of the US corn and soybean producing areas.
Here in Australia we have had a very lean start to our growing season almost everywhere except Victoria and the south east of South Australia.
The immediate negatives for prices have been an upgrade to the Russian season (which may more than balance losses from the EU), and a move to cooler and wetter conditions in parts of Canada and the US.
Here in Australia we are getting our first decent winter rainfall events as well.
All of this will take the pressure off, and give those who don’t think wheat prices should have an excuse to pressure prices in the short term.
Longer term though, current prices remain too low relative to where they should be against various measures of global wheat stocks.
The key stock measures are total global stocks, stocks excluding China, US stocks, and global stocks excluding both the US and China.
On current July US Department of Agriculture (USDA) figures, three of the four measures of stocks are set to decline this year.
The only one not declining to date is the total global stocks number.
Here the USDA are still saying that global stocks will lift 2.55 million tonnes year on year.
Any reduction to the US, Canadian and Australian crops that are not covered by increases from the Black Sea could see that modest buffer eroded as well.
So far September futures have fallen by US121c/bu since July 5.
A 50 per cent retracement of that decline would take September futures back to US514c/bu.
If it takes long enough, that might happen for the December contract, taking it to about $240 a tonne from its current value of $223 a tonne.