Bad weather in South America led Chicago wheat futures on a rally over the past week, but the looming spectre of record global stocks ensured it was short lived.
Chicago Board of Trade May wheat futures finished last Thursday at $222 a tonnes, and by yesterday the contracts were trading at $239 a tonne.
Brazil had been expected to export approximately five million tonnes of its winter corn crop.
But with the country in the grip of extremely dry weather, it is now expected to import around one million tonnes.
At the same time, heavy rains and flooding in Argentina have wiped out five per cent of the country’s soybean crop.
Reaction to the news saw a range of soft commodities lift, with soybeans reaching their highest levels since July, and corn achieving its highest level since last August.
Wheat prices finished Thursday night’s session down between $2 and $3 dollars, as speculative buying dried up and the sobering reality of record global wheat stocks sunk in.
“Because there’s not really any demand for wheat around the world, and huge supplies, from a physical point of view, none of this rise has really been reflected back to the growers’ pocket,” said AWB pool manager Charlie Brown.
“Throughout the move, the Australian dollar equivalent price on the futures market has rallied by around $20 dollars a tonne, but the grower price has only increased by around $5 a tonne.”
Favourable conditions for wheat crops in the United States, Canada, European Union and Black Sea growing regions point towards further oversupply in the wheat market, and no sign of a real turn around in wheat pricing.
Mr Brown said the rally echoed a similar rise, driven mainly by speculation.
“In June last year, heavy rains in the United States’ Midwest sparked concerns about crop damage,” he said
“Coming from a speculative short position pretty similar to where we were a week ago, the wheat market rallied around 130 US cents, which is almost double what we’ve seen in this move.
Planting intentions
Speaking to ABC Rural near the end of a tour of South Australia’s grain growing regions, Mr Brown said while some farmers intended to stay the course and plant more wheat this year, but others were considering alternatives.
Anzac Day marks the traditional start to sowing in Australia, although many farmers begin their programs earlier.
“The current situation has a number of people looking at alternative crops with better returns,” he said.
“If I’m honest, it’s probably not the worst thing for the wheat market if growers actually look at alternative crops.
“There’s such a build up in stocks that if growers look at doing something else for a year or two, then it’s not the worst thing in the world for prices.”
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