Chicago Board of Trade wheat futures defied the market at the end of last week and posted gains alongside losses recorded for corn, soybeans and hard red winter wheat futures. Corn and soybeans are caught up in the US/China trade war, which escalated late last week with additional tariffs threatened by China.
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US corn is also under pressure from the recent ProFarmer crop tour which confirmed that US corn yields are on track to prevent any serious pressure to overall corn supplies this year. The main risk factor for corn is the timing of the first frosts, which will shut down further crop development.
HRW wheat needs to price itself relative to US corn to buy demand into feedlots, and so found it harder to buck the trend of lower corn prices at the end of last week.
Nobody is quite sure what drove the CBOT SRW wheat contract higher, but profit taking ahead of the weekend, and a lower US dollar, were both seen as supportive. Also, wheat is not directly impacted by the fallout from the trade war with China.
As the US dollar fell on the worsening trade war, the Australian dollar lost more ground against the US dollar as well. That was also supportive of the Australian dollar value of US futures.
The impact of the two-day price rally at the end of last week was to simply return $US futures values back close to where they had been the week before, and to a point in the charts that equalled the highs seen in the March to May period this year.
There are still plenty of analysts who think that US wheat futures will retest the contract lows, which on continuous nearby charts would see another 50 US cents a bushel stripped of values. The contract low on the December contract would see a more benign downside of about 35 USc/bu. This is the pressure our own price base could come under and equates to about A$20 to A$25 a tonne. Meanwhile, upside in US futures is probably limited to less than $A15/t.
Within Australia the domestic market has structured itself well to cope with yet another production shortfall in northern NSW and Queensland. Port Adelaide prices are probably the key because of the ability to send grain east via rail. New season prices in that port zone are showing a basis near $A50/t, which is more than enough to ensure grain is diverted from the export supply chain.
WA prices are showing a $10/t premium to Pt Adelaide prices, which supports the market structure, as does the $85/t spread between Pt Adelaide and Newcastle port based prices.
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