Mecardo Analysis - A post-holiday update
- By: "Farm Tender" News
- Cattle News
- Jun 27, 2019
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By Andrew Whitelaw | Source: CME, ASX, Mecardo
I have spent most of June on holiday in the motherland, enjoying the summer weather in Scotland. I thought it was an opportune time to have a quick look at the market over the past month and what the main drivers have been.
During the start of the year the global wheat market was looking very bearish, with high global stocks persisting around the world. The data was all pointing towards a low pricing environment, but what a difference six weeks can make.
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Cbot wheat has increased a whopping 107¢/bu since the first week of May. This is a rise of 25% or A$57/mt. The seasonality of the Chicago contract is shown in figure 1. The contract has followed a similar pattern in recent years with a strong rally in the May-July period, which has typically lost steam. Could this year be different?
The big driver in the market was the inability to plant corn which due to the syzygy with wheat meant that there was a corresponding increase in price. Although there are still big unknowns at present with the corn yield the focus is now moving onto the actual wheat.
There are a number of concerns starting to float in the market:
* Europe is currently on the receiving end of an extreme heatwave. This is likely to have a detrimental impact upon spring crops.
* There are mixed reports emanating from the black sea countries. There are a wide range of estimates from 73mmt to >80mmt.
* After a dry start Western Australia received the rain that it needed to get a good start. However large tracts of NSW and QLD have continued their dry trend.
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At a local level ASX futures have shown a strong rise (figure 2), but not at the same rate as CBOT futures. This has meant that basis has fallen substantially between the two contracts. The next few months will determine which way basis will move, however concerns overseas can still provide a strong flat price.
Key points
* CBOT futures have risen 25% since the start of May.
* Initially corn planting progress was the primary driver however there are now concerns related to the wheat crop in Europe and the black sea.
* Basis between ASX Jan 2020 and CBOT Dec 2019 has dropped substantially with futures driving much of the increase in pricing.
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What does this mean?
It is always important to examine prices through a lens of futures and basis. During these last few months we have seen basis being the driver of price than a movement to futures being a major driver. Through pricing separately it is possible to bank improved pricing levels.
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