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Tuesday, December 19, 2017

That’s pretty much it for the year on wheat.

By Andrew Whitelaw  |  Source: MLA, CME, ACA

Key points

  • Chicago futures are trading well below the long-term average for this point in time.
  • Futures prices follow a certain amount of seasonality 

2017-12-19 Grain Fig 1

 2017-12-19 Grain Fig 2

2017-12-19 Grain Fig 3

It’s almost the end of another challenging season. The markets will be quieter over the coming fortnight, and there will likely be little in the way of activity on the futures markets, although locally buyers may be more forthcoming. This article will take a look at wheat futures seasonality, to see from a historical base, where we are likely to go from here.

The old adage, ‘Those who do not learn history are doomed to repeat it’, always strikes a cord when it comes to markets. Although history won’t always inform us of exactly what will happen with a market, it is a good indicator of where market direction may head.

In this article, I am examining the spot Chicago futures contract. Chicago futures, are considered the benchmark for global grain pricing, albeit with times of greater divergence at a local level through premiums and discounts. It does however give a good indicator of the global market.

The charts utilised in this analysis display the seasonality of the spot futures, across a range of time frames. The wheat futures tend to follow a certain level of seasonality due to the nature of growing a crop, with large swings likely in the middle of the year when we approach the northern hemisphere harvest.  Rather than using a min and max price for the banding, we have displayed one standard deviation.

In figure 1, the time frame is from the start of the century to the present day. As we can see, we are currently pricing well below the long-term average. At this week of the year the long-term average is 500¢/bu.

Figure 2 represents the 2005-present time frame. In this timefame there have been times of high pricing (2007/08) and our current low period. As we can see both 2016 & 2017 have dipped below the 70% range, in the second half of the year. In figure 3, the current decade, shows a continued period in the past two years where the Chicago contract has traded well below the 70% range.

What does this mean?

Through looking back at the different time periods, it is unlikely that any substantive price rises are likely in the coming two months.

The current market fundamentals are unlikely to propel the market without major issues. The potential issues to keep a close eye on, are limited snow cover in the northern hemisphere, leading to higher frost risk. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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