WHEAT markets are starting to feel the pressure of improved global new crop prospects.
Moisture conditions have improved on the US Plains and big pre-planting rains have fallen on Australia's east coast (with the exception of the Victorian Mallee).
But, as mentioned last week, Australia's rains have not been welcomed by summer croppers in Northern New South Wales and Queensland, where sorghum crops are on the eve of harvest. The potential for yield and quality damage to the sorghum crop has forced a sharp rally in the red grain, which should help insulate readily available old crop wheat and barley from weaker global markets - particularly for stock held in locations tributary to NSW and Queensland feedlot and poultry consumers.
The "spreads" to sorghum have already narrowed significantly, which means wheat and barley should now find greater inclusion in domestic feed rations. To put it in perspective, in track markets SOR1 bids have rallied to A$275-280/MT in Brisbane for March/April delivery. That's on a par with old crop APW milling wheat values - and close to a A$15/MT premium to new crop APW multi-grade bids. It's also about a $15 premium to export parity. But that said, there is already a substantial export program on in both containers and bulk.
This situation is in eerie alignment with the US market, where tight domestic corn supplies, versus a relatively "sloppy" wheat balance sheet have seen the May CME corn and wheat futures contracts trade at parity this week.
Combined with a strong corn basis, there is now a physical price inverse in many locations, with talk even higher protein wheat is now finding its way into US feed rations.
The headwinds for US wheat have been exacerbated by slow exports - partially correlated with aggressive Indian competition into Asian markets - and the rapid turnaround in soil moisture conditions for the "soon to break dormancy" winter wheat crop on the plains of Kansas, Oklahoma and Texas.
These areas have variously seen decent snowfalls and rain in the past two to three weeks, with more in the forecast through until mid-March. This is raising confidence the US drought is breaking - and the US National Agricultural Statistics Service is already reporting improvements in winter wheat crop conditions for these states.
There has also been good rain through the US corn belt - and while excessive rains in parts of the Delta and South East will delay corn planting, there is growing confidence in US production potential.
Conditions are also much improved on last year in the Black Sea, where early estimates suggest only about 5% of the winter wheat crop may require replanting in the spring, compared to about 20-25% last year.
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