Strong dollar acts as Chicago price buffer

Chicago wheat and corn futures continue to trade at or around 12 month lows as we look set for significantly larger crops than last year from the Black Sea region and Europe.

International wheat and corn prices have been sliding lower all year and now look certain both of these origins will have significant surpluses to export.

Black Sea wheat is taking most of the demand into the Middle East.

The most recent Iraq tender saw a large line up of offers from the Black Sea and Australian values are now uncompetitive with Black Sea wheat trading at around $50 to $60 per tonne below Australian wheat.

China has come in early this year looking to buy mostly ASW wheat out of Australia.

The Chinese domestic crop has suffered some damage this year from late rains and early indications have seen some purchases from Australia, Europe and the United States.

China may also be taking the opportunity to build their stockpile with the current low prices.

Japan and Korean demand for noodle wheat continues to be steady. With dry conditions around the Kwinana and Geraldton port zones and little carry over from the 2012-13 harvest, there is starting to be some concern the supply of noodle wheat may be tight again this year.

It is most likely growers will delay the selling of their noodle wheat until harvest.

Many growers have also made the switch to mace over the past couple of seasons indicating amount of noodle wheat grown in WA will continue its slow decline.

With June being one of the driest months on record, basis values have been strong for most WA grades as traders look to try and build positions to cover new season sales.

Despite firmer values, grower selling has been limited as preference has been to wait for a clearer picture on how yields will be impacted by the dry June. The Australian dollar has been having a big impact on local prices and has provided some buffer for the sharp fall in Chicago futures. The dollar looks to have found some short term support at 90 cents.

Don Campbell is head of trading, CBH Group.