Smart Marketing | Weather drives a solid result

Weather drives a solid result


Cropping
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US wheat futures had a solid week last week, to start this week on a one month high in Australian dollar terms.

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US wheat futures had a solid week last week, to start this week on a one month high in Australian dollar terms.

At this stage the gains are not being driven by this week’s monthly US Department of Agriculture Supply and Demand Reports, but by weather conditions on multiple fronts, and a closer look at the structure of US export sales.

The weather issues include the impact on current season crops, with drought in Australia continuing to worsen, and overly wet and cold conditions delaying the Canadian harvest, with risks of lost production and quality downgrades.

In the EU and parts of the Black Sea, it is ongoing dryness that is affecting newly planted winter wheat crops.

That means there is ongoing uncertainty about the size of the 2018 wheat crop, as well as concerns about the 2019 crop.

What the dry conditions are allowing though is rapid progress in planting, so in the end the area that goes in might end up being close to planned levels.

At this stage forecasters are predicting a larger planted area for the global wheat crop for the 2019 harvest.

On the export front for US wheat, volumes are still staying lower than the market would like to see if the US are going to hit export projections this year.

However, last week did see a better range of countries on the list of buyers, including Algeria, Brazil, Iraq and Saudi Arabia. This is a good sign as it signals a small shift in the potential demand for US wheat.

In Australia the big spring dry continued for most of South Australia and Victoria, although Western Australia and NSW picked up rain in many areas. In terms of the NSW crop it does little except finish off some poor crops in the central west.

Other wheat areas remained dry with the rain a bit too far to the east, or the west, for most crops.

The Australian market was relatively stable for the week, indicating we might be near a top. It has also allowed the gap between our prices and export values to begin closing.

At some stage we will need to align with global price levels in key export port zones, with a ripple effect around the country.

There are a number of factors now in place that suggests that we should have seen the seasonal low in US wheat futures. If that holds true, then we should see a lift in global wheat prices as we get closer to our own harvest.

The biggest risk will come from the next two monthly USDA Reports. Any shocks here will be a setback.

The best bet is that any lift in offshore values won’t be added to Australian prices, or at least not in full. In this way the gap between our prices and global prices will begin to close.

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