WHEAT futures staged an explosive rally last week, with prices close to limit up on Wednesday night.
The rally resulted in September futures prices equal those set in the first half of June but failed to match the overall high to date set on May 29.
On the continuous futures price series, the market came very close to matching the May high.
The current price levels in US cents a bushel are now very close to the peak in the market recorded in July last year, and then we go back to July 2015 to see prices at similar levels.
Australian wheat prices have also surged, getting support from the gains in EU and Black Sea prices and from US futures prices, as well as from our own seasonal issues.
Old season wheat prices have hit $400 a tonne on the east coast, with South Australian and Western Australian prices at levels that will continue to see grain move from those origins into the NSW market.
Global wheat supplies remain under pressure, with more reductions in production estimates for the EU and Black Sea most weeks.
There has also been harvest rain in Ukraine and Southern Russia, which has resulted in a further loss of milling quality wheat as weather damage takes hold.
However, harvest is still to make a lot of progress in the EU, and some reports from the UK are suggesting that cereal crops have held up better than expected against the recent hot and dry conditions.
Rapeseed crops seem to have taken a hit, but barley yields are better than expected, and very early winter wheat yields are also holding up.
As harvest gathers pace across Europe and continues in the Black Sea we will get a better idea of actual yields and move away from perceptions.
As that risk comes out of the market, and volumes available to the market build quickly, we could see the “normal” season pressure on prices as we move through August.
At the end of the day though, expectations remain that global importers will have to turn to US supplies in the second half of the marketing year.
Right now, that is not the case, and once again, last week’s rally in CBOT futures pushed US wheat prices too high relative to prices from the EU and Russia.
Add to that the move to capture profits going into the end of July, and we saw the sharp rally on Wednesday falter. From the intraday high on Thursday, to the low on Friday night last week, the market gave up around 22 USc/bu.
We will also get to the point where the market will wait for the next USDA Supply and Demand Report due on August 10.
This report should combine all the information about the Russian and EU crops that have been coming in from multiple forecasting agencies.
It should also shed some light onto the Australian season, as well as giving an insight into how the USDA see US exports moving to fill any supply gaps later in the marketing year.
While production estimates are likely to be revised down by the USDA, consumption projections are also likely to be pulled back, as higher wheat prices stall the use of wheat for feed.
In other words, the hit to the global balance sheet is unlikely to be as severe as the projected reductions in production are suggesting.
