IT IS an interesting time for the global wheat market as it attempts to break out of a decade long downward price trend.
The market peaked in late 2007 and early 2008, and despite two major rallies in 2010-11 and mid 2012, the market has been in steady decline.
Last year’s mid year rally gave us a hint that the long term trend may be under threat, but that rally failed.
Also, in the context of price rallies of the past 10 years it was also relatively minor in its extent.
This year is giving us another hint that the long term price direction might be about to change.
The lift in the market so far this calendar year is modest, but it seems to be consolidating, and may be poised to provide a price base for a longer term shift in direction.
This year is also interesting because we are facing a decline in global wheat stocks for the first time in six seasons, with more attention being placed on stock levels of the major exporters, where stocks are falling the most.
The key measure of stocks which excludes Chinese stocks, is set to fall significantly (possibly in excess of 20 million tonnes), and down to decade lows.
So far, the market does not seem to know what to make of the underlying trends in wheat stocks.
Although the stock projections are underpinning the fledgling change in price direction, they have not been enough to definitively push the market into a sustained rally.
From a US perspective wheat prices cannot go much lower because prices are already under the cost of production.
That is not necessarily the case in other markets though, because currencies are helping maintain better price levels in other major producing countries, including Australia.
Also, at the moment, production estimates for the EU, the Black Sea, Australia, and possibly Canada, are also under question.
Parts of Europe were too wet and now too hot and dry, and crops with poorly developed root systems are suffering.
France and Germany have had production estimate downgrades, and the UK is facing the same.
In Russia early winter wheat yields were better than expected, but yields have dropped away as harvest has advanced.
More importantly, their spring wheat crop area is well down, and areas that were planted late are expected to yield poorly.
Still, it is taking some time for EU and Russian wheat prices to respond to the lower production potential.
Prices are being held back by ample supplies carried in from last year that are allowing exports to continue without the impact of tightening production pushing up prices.
The questions now being raised are whether the current downgrades to production will extend, and their impact on global figures.
The extension of that is whether it will allow demand to flow over to the US.
Australian production also has to be in trouble, with very little of the country having a particularly good year to date.
In Canada crops are in good condition and at normal development, but top soil moisture continues to be tight as the weather warms up.
Like Australia, they are not well off for subsoil moisture.
The next couple of weeks should begin to tell us whether wheat stock estimates are tightening further, and whether that will be enough to consolidate a change in the long term direction for wheat prices.
