True to form, the market rallied at the start of last week, with prices for the July CBOT futures contract surging to a high of 554 US c/bu coming out of the US Memorial Day Holiday weekend. The chart of continuous futures prices shows that there is now only one day since the week starting 15 July 2015, where the market has traded higher than last week’s high.
The market then fell away sharply. With the range of problems globally, it is probably too early in the northern hemisphere growing season for the seasonal high to be in place. We should see higher prices during June.
The good news is that with tightening global wheat stocks, at least some of the gains seen so far should be retained into the end of the calendar year. While we would expect the market to ease in July and August as the northern hemisphere harvest pushes global supplies to their highs for the year, a complete reversal of prices, like we saw in 2015 and 2017, is not expected.
June should be somewhat volatile. Dry areas in the US, Canada, EU, Black Sea and Australia are likely to get rain. As these events occur they will prevent crop conditions from getting worse and should see some improvements – poor crops tend to get a little better over time.
Where crops are doing well, including the bulk of the US corn crop, conditions are likely to retreat a little over time, putting pressure on crop condition ratings. That might still leave ratings at high levels, but stall any further lift, and probably see a small retreat.
At harvest the market will be assessing the global and local balance sheets, looking at demand from major importers, and where supplies might be coming from.
This is the danger for wheat prices into the end of the year. With large stocks behind them, Black Sea exporters will likely continue to ship large volumes into key markets, even if their crops contract in size. Europe will also be able to fill some of the gaps.
That will continue to leave the US struggling for traction in export markets for much of this calendar year even as the global balance sheet tightens. Until the US can see a lift in export activity, it will remain hard for US wheat futures to retain all the gains that we might see during the middle of this year.
The real action for wheat futures should come in early 2019. At this point global wheat supplies will hit their seasonal low, and it should show a considerable tightening of stocks outside of China and the US. Add seasonal uncertainty and it should be enough to put prices back to where we are seeing them now and, in theory, well above those levels if a drop in stocks is factored in.