The strength evident in the United States wheat futures markets before Christmas has held up over the holiday break, with Chicago Board of Trade futures hitting new highs in successive trading sessions after December 29. The market peaked in the first trading session of 2020, with the high being 7 US cents a bushel below the high set for March futures in late June.
On rolling continuous charts, nearby futures have made a new high, and in $A terms a new high was made just before Christmas, with a rising Australian dollar pulling back the $A value of futures despite the higher US dollar prices post Christmas.
Nearby CBOT futures have now traded at their highest $A value since mid December 2012 and peaked at $A297.50 a tonne. New season December 2020 futures peaked at just over $A306.50/t (and were still valued at $304.50 at the start of this week). It has been rare to see nearby futures above $300/t since 2008, so new season wheat futures are approaching the peaks we have seen in spot markets over the past 12 years.
Several factors have been at play over the Christmas/New Year break, including ongoing dryness in the Black Sea region, a decline in projected Russian wheat exports for this marketing year, and a rising Russian currency, reducing the competitiveness of Russian wheat in global markets.
We have also seen a decline in US winter wheat crop condition ratings, although they are not excessively low and the correlation between crop condition ratings at this time of year and final production results is low.
Here in Australia wheat prices have followed US futures higher in all port zones. NSW prices remain high enough against SA prices to ensure a flow of grain overland to east coast markets.
We also have basis levels strong enough in SA and WA to ensure that there is enough tension in the market between exports and domestic use to ensure that grain is held back for the local markets.
From here the main drivers of the market in the short term will be the geopolitical factors surrounding the Middle East and US tensions, and the release of the January USDA Reports. In particular the market will be watching for changes to export estimates for Russia. Tensions in the Middle East could send currency and commodity markets in any direction.
Outside of the above, we often see the wheat market stagnate for a while against a lack of production related news as the northern hemisphere progresses through winter. It can become a danger time for wheat prices until we see the new northern hemisphere growing season unfold during our autumn.
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