Northern hemisphere harvest pressure

At time of writing, the United States Department of Agriculture (USDA) had reported the US winter wheat crop at six per cent harvested with 49pc of the crop rated in good-to-excellent condition.

For reference, the US winter wheat crop rated good-to-excellent was 36pc at the same time last year and the five-year average is 46pc.

So, the crop is in pretty good shape as harvest gets underway.

The first crop ratings of the later maturing and higher protein US spring wheat crop were also released with 74pc in good-to-excellent condition which compares to the five-year average of 54pc.

CBoT nearby wheat futures have fallen nearly 100 US cents per bushel (A$24/t in Australian dollar terms) from the recent highs made at the end of May to reach the lowest levels in four weeks.

It will be interesting to see how the USDA updates its Russian production estimates in the June World Agricultural Supply and Demand Estimates, which are to be released later this week.

Last week private estimates of the Russian wheat crop continued to reduce with market consensus around the 80 million tonne mark versus USDA at 91.5mt.

If the USDA was to adjust its Russian crop estimates to more in line with market consensus, it would tighten its available global wheat stocks estimates and may stem current price weakness.

Now let's consider the influence of corn and market speculators on current markets.

Corn prices can be a significant driver of wheat prices given the commodities are substitutable into many feed rations.

Higher corn prices can mean higher wheat prices and vice versa.

Speculators are market participants who buy or sell futures contracts to make money from the market moving in a particular direction.

In early March speculators held record short positions in CBoT corn at more than 230,000 contracts.

They were betting on large corn crops globally and corn markets moving lower.

The rally in global grain prices through April and May coincided with speculators reducing their net short positions in CBoT corn significantly to reach near zero in May, or a neutral stance.

The short positions have started to build again in CBoT corn to around 50,000 contracts when last reported.

US corn is emerging from planting and reports indicate conditions generally look favourable at the start of their growing season.

Speculators appear to be betting the good US corn crop conditions will continue.

For more information or to see what values are trading in Australia contact Clear Grain Exchange on 1800 000 410 or support@cgx.com.au