The wheat price rally has run its course, Australia &
New Zealand Bank said, with the weak price of corn to prevent values posting
further gains on the "myriad" of supply concerns, in countries from Brazil to
While wheat prices "look to have bottomed out" for 2013-14
in the August dip, when the spot contract hit a 14-month low of $6.23 a bushel
in Chicago, that does not mean that values will extend the rally which has
taken the benchmark December lot to $7.06 a bushel, as of Thursday, ANZ said.
Prices will be held back by the sluggish corn market, whose
discount to wheat stood at $2.62 a bushel in early deals – contrasting with
the, atypical, premium which corn had for much of last year, thanks to a
drought-hit US harvest.
While wheat has in fact often held larger premiums on a
December futures basis - of $3.50 a bushel early in 2011 and nearly $4 a bushel
last year, before the extent of the US drought became clear – the current gap
looks high enough to limit further headway.
'Premium high enough'
"We view the price premium wheat has built over corn as high
enough in limiting milling wheat sales into the animal feed sector," Paul
Deane, ANZ senior ag economist, said.
"With wheat prices looking fully valued to corn, and corn
prices unlikely to rally in the current quarter, further upside for wheat looks
limited near term."
"Sideways price action" in corn was likely to "cap further
gains in the current quarter" in wheat prices, Mr Deane added, although he forecast
that wheat values would stay above $6.50 a bushel until mid-2014.
The forecast took account of the range of threats to wheat
supplies, of which Mr Deane viewed those in Brazil, where rain and frost has
hurt crops, in Russia, where excessive rains have slowed autumn plantings, and
drought in China as the most supportive to values.
In China, "the degree of dryness leading into the autumn
planting of winter wheat in the Yellow River production region has only been
surpassed twice in the last 30 years," threatening some sowings, Mr Deane said.
The comments came as the official Xinhua news agency said
that drought in Henan province, in central China, was affecting 1.24m hectares
Henan, which is responsible for some 10% of domestic grain
output, has suffered a 50-60% drop in rainfall since the start of September,
leaving half its cities and counties hit by severe drought, the agency said.
'Poor yields and
ANZ made no reference to the Australian wheat crop, which is
also under scrutiny amid a wide gap, of 23.6m-25.7m tonnes, in analysts'
Cargill's Australian grain handling business, AWB, said: "With
harvest well underway Southern Queensland and Northern New South Wales farmers
are dealing with poor yields and higher protein.
"However the majority of Australia's wheat belt looks