By Andrew Whitelaw | Source: CME
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:
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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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.
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