GLOBAL wheat prices have spiked, then plummeted, then picked up once again as a twitchy market tries to make sense of conflicting supply and demand information.
Last week most analysts seemed to agree the US spring wheat crop had sustained serious damage, leading to rises on the Minneapolis wheat futures contract, however the weather news was not so bad for other types of wheat.
This has led to Minneapolis, which is generally used as a contract for high protein wheat types, trading at a significant premium to the other major US wheat futures contracts, Chicago and Kansas, which have held onto around half of their initial gains.
Locally, fears about Australian wheat production due to dry conditions in many grain growing areas also add to the intrigue.
At present Australian wheat is trading with a significant positive basis, around $50 a tonne, in comparison to international values.
Some analysts have cut their predictions for the Australain wheat crop as low as 18 million tonnes, while many hover around the 20mt mark – all significantly lower than the most recent figure by a government forecaster, 23mt from the US Department of Agriculture (USDA).
Market Check pool manager Nick Crundall said the spike in pricing had seen some Australian growers selling.
“The $300/t mark acts as a bit of a barrier, once the prices pushed past that mark for new crop we saw growers locking some in,” he said.
Mr Crundall said Australian values had not notched the same losses that were seen on Chicago and Kansas futures since the middle of last week.
“It’s easy enough to see why basis is strong when there is all the talk of a smaller Aussie wheat crop about and the way the market is moving it seems people feel there is not as much carryover grain from last year’s big harvest as it was thought.”
Mecardo analyst Andrew Whitelaw said the volatility surrounding the Australian crop would not stop until more was known about the size of the crop.
“We always say it is a very tough job making predictions on tonnages in July, even getting planted area right is tough enough then you have the variability of spring rainfall.
“Until we know more there I think the potential risks will ensure there is a positive basis.”
In terms of international drivers, Mr Crundall said he felt the protein story, driven by the failing US spring wheat crop would continue to drive price rallies.
“I’m fairly bullish on Minneapolis, there is still more to play out in that space.”
Mr Whitelaw said it was not surprising to see the run-up in spring wheat futures given the crop condition, but added he was interested to see other high protein futures contracts had not seen the same gains.
“It is definitely a spring wheat story, Kansas is the major product for hard red winter wheat and it gave back a lot of its gains.”
Both men were more muted regarding wheat as a whole, but said further negative weather in North America could see more price rises.
“We saw Chicago and Kansas give away a large portion of the gains they made last week, but the story is far from over,” Mr Crundall said.
“Firstly you could see high Minneapolis prices working to drag Chicago up, while the health of the row crops will also have an influence.
“At the moment the corn crop in key areas like Iowa and Illinois are in OK condition but it is on the dry side and combined with hot weather this could see the crop deteriorate quickly.”
“If that happens, we’ll see wheat dragged up in corn’s slipstream.”
Mr Whitelaw said at present there was plenty of lower protein wheat available to satisfy the world’s needs, but said crop conditions in many places were on a knife edge.
“There’s a lot of talk about North America, but parts of Europe are also very dry, such as Spain and parts of France,” Mr Whitelaw said.