RALLYING wheat prices gave WA growers a reason to smile last week with APW2 prices reaching $285 a tonne in the Kwinana zone.
The price increase stretched throughout most port zones, returning to levels seen in early January this year.
MarketAg independent grain marketing advisor Mark Pontifex said the investment funds trading Chicago wheat held a record short or sold position and had been buying back those positions in the past few weeks.
"This has seen Chicago Board of Trade wheat prices lift from US555c/bu at the beginning of February to US620c/bu in recent days, a lift of US65c/bu or about $A25/t," Mr Pontifex said.
"This has seen local prices lift $15/t in most port zones and they are now back at levels of early January.
"We have not seen the full move in CBOT wheat as the Australian dollar has also lifted from 0.88 to 0.90 in the same time."
Mr Pontifex said there had been strong demand for higher protein H1 and H2 wheat in most port zones throughout the past week.
And premiums had reached season highs in Esperance and Albany Port Zones.
"We are entering a crucial time in grain marketing, as northern hemisphere crops begin to emerge from dormancy," Mr Pontifex said.
"This may present pricing opportunities in the coming weeks in the event of a weather scare.
"It is very early in the growing season for these crops and it is a long way to go before they are harvested."
Plum Grove commodity trader David Pritchard said it was the combination of two major factors that had led to the price rally.
Firstly, he said there were ongoing reports of winterkill in parts of the US, particularly in big grain-growing regions such as Kansas, Oklahoma and Texas.
"These haven't really materialised into massive stories but there have been some stories every second day which starts to mount a cumulative story," Mr Pritchard said.
"So that constant threat puts enough fear into the market to make them worried."
Secondly, Mr Pritchard said there were a lot of hedge and grain funds that had played the US markets like the stock market.
"Back in September they took the view that there were mountains of wheat in the US and throughout the world and they started selling," Mr Pritchard said.
"They were selling short in the view that the price would fall and that forced the price to drop.
"With selling pressure the price will go down.
"And it went all the way down to that point at the end of January when these weather stories started to surface again."
Mr Pritchard said those traders that sold down had needed to buy back wheat to lock in profit.
"They started to think if they could buy it back again at a low enough price they would lock in the most amount of profit," he said.
"So as they start buying again it forced the price back up, and they did end up buying back on the basis of this weather threat."
Mr Pritchard said while the weather event in the US was real, it was the hype of this, paired with short funds, that had led to the significant price hike.
"If the funds weren't short then we might have rallied $5/t on the back of a weather story, but because they're so short we have rallied three times that," he said.
"You have every other trader looking at the fundamentals saying, 'okay we do have winter kill', and that is factored in as well.
"But if you took the main driver out, which is the funds, it wouldn't have gone down so far or rallied back up so far, so they are a lot of weight in the market."
Mr Pritchard said rising markets should always be considered as an opportunity for farmers looking to sell grain.
"With a $15/t rally, which is effectively 5pc, this should present a good opportunity given an individual's circumstances," he said.
"Most guys are probably quite comfortable and have sold quite a bit the prices have been good for 12 months now so the pressure is probably off.
"It's difficult to look beyond the next two to three weeks, but I think prices will hold firm in the short term given the current market forces at play."