After Friday night's trading last week, the weekly move in Chicago Board of Trade futures had resulted in $A10.17 being added to the March contract. That was driven by just an 8.25 US cents a bushel lift in futures, with the real boost coming from a drop in the Australian dollar of nearly 1.25 US cents, down to 66 US cents.
The uncertainty about the future of global economic growth in the wake of the coronavirus epidemic has sent the US dollar higher. Despite the week-on-week lift in CBOT futures, that lift in the US dollar put pressure on futures prices for the last few days of last week. In turn our dollar has emerged weaker, limiting the impact of the late week losses, and leaving the $A value of US futures above $A300 a tonne.
Earlier we went through a period where CBOT futures had fallen below $A300/t. The outlook was not positive as underlying futures kept falling away, particularly ahead of the US President's Day long weekend.
Coming out of that weekend break, and coinciding with ABARES reducing the estimate of our crop down to 15.17 million tonnes, US futures surged, adding $A14.50/t in one session on Tuesday last week. The market then fell progressively as the US dollar strengthened and those caught on the wrong side of the sharp rally were removed from the market, stemming the flow of buying.
The gyrations in the market were interesting. The sharp rally shows that there is still a lot of uncertainty about near-term price direction, with the market seemingly concerned about selling off too far.
Equally though, we have now seen that it is hard to sustain a price rally, and as impressive as the price surge was, it failed (in $US terms) to get close to the highs set on January 22.
We are now back to where the immediate concern is the disruption from the coronavirus, particularly on economic activity in China, and the longer term impact on global economic growth.
At the end of the day the coronavirus has not materially changed the global balance sheet for wheat. It will impact energy demand via an economic slowdown reduced demand for crude oil and biofuels. That may impact the demand for wheat where wheat is the primary input for biofuel, but the bigger impact is likely to be on corn, soybeans and canola/rapeseed.
We also have the outlook for 2020, where the United States Department of Agriculture has confirmed a forecast for a lower US wheat acreage, and lower production is forecast for the EU (137.9mt, down from 145.7mt in 2019/20). Balancing that is the larger acreage planted in Russia, and reports that crops in the Black Sea are well advanced relative to recent years, because of the mild winter that they have enjoyed.
A mild winter in Russia normally boosts their crop and exportable surplus.
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