Coronavirus levelling out bullish markets
By James Massina
The past month has seen a steady push higher on all markets for wheat. Aussie cash prices have continued to rally as growers have seized the opportunity and been exiting small tonnages into the market while buyers remained hungry across all zones. On farm feeding continues to ramp up with record numbers of cattle on feed in the north and the absence of any planting rains for summer crops, with current forecasts to be the lowest in decades. Northern NSW and Southern QLD have only just now received their first planting rains for sorghum and even though traditional thinking suggesting it’s far too late to plant, there are growers gearing up to have a go to try and catch some of the record pricing on offer for sorghum.
Add to this that China has reportedly made the first purchase of Aussie wheat for this campaign, catching many by surprise, and the demand profile was stronger than anticipated. The trade deal between the US and China progressed to the point where leaders sat down and signed a Phase 1 deal, giving bullish momentum to speculators. Funds have turned long and CBOT wheat has pushed from the old trading range of 515-540 and now sit at 570 for the March contract. The counter to this bullish tone however is the recent Coronavirus health scare that started in China and is spreading across the globe which is adding a bearish or risk-off tone to most markets. Furthermore, cash markets in the Black Sea region are steeply inverted which adds to the bearish sentiment.
Fundamental support offshore comes from US winter wheat plantings at 100-year lows, dryness appearing in the Black Sea and ongoing strikes in France causing potential shipping delays. We finish January off by seeing Argentine wheat values bounce $20 in two weeks meaning that one of the cheap suppliers to Asia might in fact be oversold for now. It has been a big start to the year.
It is worth keeping an eye on the Indian crop and noting their favourable growing season and production estimates of 115mmt or more. This can mean that India turns into an exporter of low-quality wheat.
Despite low US wheat plantings, stocks there remain extremely high and their wheat is overpriced. Expect that any bullishness on account of funds getting long will disappear without a global supply shock at some stage. Remember last February, the weather scare did not eventuate, and US futures dumped roughly 100c in the month of February alone.
Following some excellent rain in QLD and NSW over the past week, weather models continue to point to a neutral pattern here for a while. The positive IOD that has been curbing our rainfall for the past six months has finally broken down to a more neutral level and without a strong signal from the Pacific Ocean right now, models are all talking about more average chances for rainfall in the coming months. That’s neither a positive nor a negative for our market, but sooner or later we’ll all be looking for another decent rain to get some optimism around planting 2020’s crop.
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