Speculative buying pressures futures

For the week ending Friday November 5, CBOT December futures shed 6.25 US cents a bushel, but the weakening Australian dollar still saw a $A3.08 a tonne lift over the same period. However, that camouflages the decline to $A380.91/t, from the peak price of $A391.53 seen earlier in the week, which is really the unwinding of the speculative bubble.

That aside, global agencies are still warning that wheat stocks held by the major exporters are set to fall to multi-year lows. That in turn leaves the market exposed to any production issues for the 2021/22 season.

As well, the market has been assuming that good crops in Australia and Argentina will ease the supply situation, although projections for those crops are already accounted for in the current balance sheet forecasts. That means that any harvest issues in Australia will be watched to see if the current projections need to be revised down.

The forecast for rain this week across large parts of NSW is on the radar for wheat market watchers.

Overall, there is justification for risk premiums to be built into wheat futures prices, for both current season contracts (December out to May), and for new season contracts starting with the July 2022 contract.

Contributing to those risk premiums are concerns about pockets of dryness in the US Great Plains, where newly planted winter wheat crops are developing ahead of dormancy. Last week's crop condition report suggested that only 45 per cent of the crop is rated good to excellent, down one point from the week before, and not much better than the 2020 rating at this stage of the season.

In the Black Sea we are seeing domestic wheat prices in Russia ahead of export prices. This could have two results. One is that Russian farmers may limit cash wheat sales to the export market, while it also sets up the scenario for further increases to their export taxes to lift export prices.

In Ukraine there is a risk that this year's winter crop plantings will come in under those of 2020/21. The original forecasts were for a 550,000 hectare increase in planted area this year, but to date the amount planted is still under the 2020/21 area.

This has seen Ukrainian wheat prices increase against the concerns of a lower planted area. Surging fertiliser prices are being blamed for some loss of acreage. In addition to that, about a third of the crop planted to date is suffering from a lack of rain.