WE are in volatile times. Historically, international grain markets are prone to move quickly at this time of year.
Large crops are sensitive to weather scares during grain fill and harvest.
With some relatively underwhelming reports of dry weather, the global wheat markets rocketed up during trade last week.
Reports of dry weather in the extensive grain production areas of Eastern Europe, Western Russia and the Eastern Ukraine were enough to set wheat markets on fire last week.
Wheat markets in the US shot up about 7 per cent to their highest level for the nearby wheat contract since mid-January.
Results of some large wheat tenders now show that the cheapest wheat in the world is about US$20/tonne higher than it was two weeks ago.
Australian grain markets have also responded.
Western Australia has also had its fair share of dry weather and emerging cereal crops are struggling with the added pressure of frosts. NSW wheat futures markets lifted $10 a tonne on Friday.
Exporter bids for prompt delivery Victorian APW wheat are $12 a tonne to $14 a tonne higher this week.
New-crop prices for wheat are also up by about $8 a tonne to $229 a tonne delivered to Victorian ports for the benchmark APW wheat.
These lifts in grain prices are even more impressive when we consider that moves in the exchange rate have not been favourable.
The fall in the value of the Aussie dollar to about US84c last week has been reversed and it was trading just over US87c earlier this week.
These moves have caught out some traders and buyers.
The market was aware of the dry conditions for grain growers in Western Australia, but some good falls of 50mm last week will help these crops.
There may be some dry areas of wheat production areas in Europe.
However, as can be seen from the French crop tour that comes with the TV coverage of a bicycle race, the world has some healthy crops of wheat.
The USDA has reduced the forecast of world wheat stocks for June 2011 by 6 million tonnes.
By about this time next year, the US expects to have its highest wheat stocks since 1987.
Delays to the US harvest suggest that yields may increase and stock grow further.
To fully rationalise these market moves, traders believe that investors within the US hedge funds have switched from a net sold, or short position, to an overall long position.
Other investors who have been absent from the market due to the financial crisis are thought to have regained some confidence in grain markets and returned with buy orders.
Together, these apparently smaller market developments can help explain why the wheat market has responded so significantly.
