Wheat prices could fall even further, in the absence of any concern over North American production prospects, the Australian and New Zealand Bank said.
Chicago front-month wheat prices are down more than 4% since the start of the month, as markets expect US winter wheat condition to improve rapidly after soaking rains in the Plains this weekend.
“Wheat prices risk testing new lows unless weather conditions in the Black Sea or North America deteriorate and reduce wheat yields,” ANZ warned.
Risk of new lows
“The recent weakness was attributed to forecast widespread rainfall across the US Plains” ANZ said.
2April rainfall and soil moisture levels are critical in determining yield prospects for much of the Northern Hemisphere winter wheat crop.”
ANZ said “adverse weather in the northern hemisphere,” was the only prospect that could rally markets in coming weeks.
Otherwise, “abundant global wheat supplies will again hit the market by June, placing further pressure on prices”.
But the bank noted that Australian wheat prices could still see support, if the Australian dollar falls further against the greenback.
La Nina could boost Aussie production
ANZ noted that if La Nina arrives, it is likely to bring good rains to the east coast of Australia, which “raises the probability of above-average yields” in the region.
The Australian Bureau of Meteorology has the possibility of a La Nina event at 50% for this year.
The report also point to downward pressure from China, which last month pulled price support for corn.
The move, which will make corn more affordable for the Chinese livestock, is likely to hit export demand, ANZ said.
Good Argentine prospects
Argentina may also see “notably higher” production, the bank said, following a shift in government policy, and exchange rates that have supported domestic prices, and encouraged wheat planting.
“The removal of grain export taxes by the new government is forecast to result in a large jump in wheat plantings to 5m hectares,” the bank said.
“The large depreciation in the peso and the removal of the export tax on wheat has pushed wheat prices in Argentina 40% higher at planting (with this year near an all-time high) compared with 2015.”
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