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Friday, April 03, 2020

Disease keeping wheat prices strong.

By Andrew Whitelaw  |  Source: CME

2020-04-03 Grain 1

The market has been assisted in recent weeks by the high levels of uncertainty. This week the wheat price has fallen, albeit remains strong.

Let’s start this weeks’ commentary on a global level. The price of a December CBOT wheat contract has fallen dramatically in the past week. On the 25th March the contract was trading at A$352, it has now fallen to A$334. A fall of A$18 is considerable, however it has to be noted that it had risen A$51 during the preceding ten trading days (figure 1).

In Australian dollar terms the futures have lost some ground as our dollar increased from 55¢ to 60-62¢. A higher dollar reduces the price on an Australian denominated swap.

Fundamentally the wheat market is relatively bearish, however the uncertainty caused by COVID-19 and the associated government interventions can add a huge amount of volatility. Here are a few reasons for movements lower in wheat:

  •  There are deepening concerns related to the global economy. As unemployment rates around the developed world skyrocket there will be a slowdown.
  • Eqypt, traditionally the worlds’ largest wheat importer started a tender process then suddenly pulled the tender.
  • There has been speculation that Russia will introduce an export ban. At present this is proposed as a 7mmt export limit between April and June. In reality no more than 7mmt would likely be exported in this time frame.
  • Corn prices continue to edge lower as ethanol drops to record low levels in the US.
  • The FAO expect near record wheat production in 2020.

In reality the market has bearish tones, and if it were not for COVID-19 the pricing levels would likely be substantially lower than they are at present.

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The week ahead

In the coming days we will start to see some official unemployment figures. The US is estimated to jump from 3.6% unemployment to >8%. This is an unprecedented rise, and one likely to be repeated throughout the western world.

The USDA will release their World Supply and Demand estimates next week. This will likely show that fundamentally the world is well supplied with wheat. However, fear and sentiment have as much capacity to move the market at present.

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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