CHICAGO Board of Trade wheat futures move to new lows in the last week of August, before staging a recovery ahead of a long weekend in the US last weekend.
The wheat market has hit a seasonal low in the past two weeks of August in three of the past four years. 2014 was the exception, when prices pushed lower into September.
The end of August is the end of the marketing year for US corn and soybeans, and it is around the start of the US corn harvest.
The US wheat harvest is normally all but over, and while the Canadian harvest is gather pace at that time, harvest in Europe and the Black sea is very well advanced.
We can expect a few bumps in the road moving forward, and we may even retest last week’s lows at some point, but the pendulum is now swinging in favour of a recovery in wheat prices as we enter the last four months of the year.
On continuous weekly charts, CBOT futures bounced off an upward trend line that comes from last year’s August low, and the dip in prices seen in late November last year.
This supports the argument that last year was a long term low for wheat prices.
However, expectations to the upside need to be kept in context of the current global market where cheap supplies from Russia are dominant, although prices have fallen to a point where EU farmers are not interested in selling (prices are below costs of production), and that is limiting the export volumes from the EU.
It is also acknowledged that logistics will limit the total volume that can be exported from Russia.
Russian exports are already running a little slower than they need to, to carve into this year’s big crop.
There are a number of factors that should begin to turn this market around.
In the US sales of old season corn have stalled.
Preharvest selling to clean out bins seems to have passed its peak.
We also have a forecast for dry weather which could begin to impact planting conditions for the next US winter wheat crop, particularly in Central Kansas, where it is already on the dry side.
The dry forecast may also pin back final yield development for the US soybean crop.
There is also a frost risk, although it is seen as probably being minimal.
The Canadian harvest will be lower this year, with projections for a seven per cent drop on last year, but the decline is not projected to be as large as anticipated.
This has impacted spring wheat futures, but the view still is that spring wheat supplies will have to be rationed by high prices in the US this year.
We are also likely to be facing further downgrades in production estimates for the EU and Australia, and while these are likely to be soaked up by a further lift in the Russian crop estimate, the limit to their level of exports should become a supportive factor.
Here in Australia we are entering the first week of spring with little rainfall forecast for the wheatbelt outside of the very southern areas of South Australia and Victoria.
With frost also an issue, yield potential on Australia’s crop will be going backwards again, after a relatively positive July and August period outside of the northern cropping areas.