That ‘breather’ we mentioned in February was indeed the calm before the storm. The market surged again in early March and has been bouncing about ever since!
US wheat futures rallied strongly to start the month driven by the prevailing dryness in Argentina and the US Plains. Aggressive short covering by the hedge funds saw the Chicago wheat futures contract rally by more than 20% off the lows of December. The move higher was even more extreme for the Kansas Hard wheat contract, which witnessed a rally of nearly 30%. This price action is a perfect example of just how much influence the hedge funds can have over the market, especially when holding a large short position that they want to exit in a hurry.
More recently, better than expected rains for the US Plains and the fact that US wheat has priced itself out of many of its export homes, has seen futures markets fall away. While US wheat exports continue at a modest pace, the speed of Russian wheat exports has been impressive. Russia exported 3 million tonnes of wheat in February, and with four months of the export calendar still remaining, they have already surpassed their previous best export year.
An upbeat assessment of the US economy by the new US Federal Reserve Chair, and the potential for as many as four US rate hikes in 2018, has seen the Australian dollar fall from its January highs to a 3 month low of US$0.77. Despite subdued US wage and inflation growth casting doubts over the need for such as aggressive approach to raising US rates, the US FED is widely expected to raise rates by 25 points this week to 1.75%.
Wheat prices in South Australia rallied by $20/t during February and early March. A combination of futures strength and a softer Aussie dollar allowed APW1 prices in Port Adelaide and Port Lincoln to reach $260/t. Consistent demand for hard wheat in a number of zones has seen the price spread for H2 extend beyond $20/t.
Consistent Chinese demand and strength in global feed barley values has kept the spread between wheat and feed barley at historically tight levels, as illustrated in the chart below.
Locally, the Port Adelaide zone has witnessed the strongest demand for feed barley, while prices in Port Giles and Port Lincoln have started to come under pressure in recent weeks.
AGG managed programs are being executed within their published and transparent mandates and are performing well relative to the Dec/Jan harvest average prices.