World wheat prices have had their best finish to a week for more than a decade, holding out hopes that embattled Australian grain growers will receive a quick boost after the misery of the 2006-07 drought.
As well, the rains in eastern NSW have helped boost water storage levels along the coast and in and around the Hunter valley wine industry, meaning the likes of McGuigan Simeon Wines might be facing a more optimistic outlook after this year's expected loss.
The huge US grain markets though last week saw an almost explosive run up in prices which finished the week over the $US6.20 a bushel level.
If prices continue around these levels for the next month or do (rising and falling through $6 a bushel) and Australian growers and marketers (the slow AWB) manage to lock in prices around these levels, then the local industry is facing a substantial boost.
More good rain is needed in NSW, South Australia, southern Queensland and Victoria, but should that come between now and early summer, we could be looking a sharp jump in the output of all grains and farm incomes.
It could add to the boost the Reserve Bank and others have already factored into economic forecasts of around 0.6 per cent to gross domestic product from 2008 onwards.
That in turn could mean a local economy growing at well in excess of four per cent real a year!
Heavier than wanted rains in the main US wheat growing areas, and expanding dry conditions in some of the main corn growing states, combined to push the prices of wheat and corn sharply higher, while the prices of oil seeds were also boosted.
But it's wheat where the action was and looks like being for a while. Helped by the participation of financial investors (or speculators) and the lowest world wheat stocks for 30 years, prices are becoming volatile. They could quite easily run up most, if not all the daily 30c a bushel limit in Chicago, or fall by as much.
On the Chicago Board of Trade, July wheat prices surged 13 per cent to a high of $US6.23 a bushel before easing a fraction on Friday.
Prices reached an 11-year high of $US6.28 a bushel as traders attempted to cover short positions, having made the wrong bet that prices would fall.
At one stage wheat prices in Chicago had risen around 90 USc a bushel in four days of trading, a sign of just how frenetic trading was in the pits.
Besides the US grain growing areas, floods and mainly drought, continued to threaten harvests in grain-producing regions across the globe.
A continuing complication is the growing demand for corn from US ethanol producers, while a key US Senator last week introduced draft legislation calling for a significant boost in biodisel production in America over the next few years. That in turn forced up oilseeds prices, especially soybeans and canola.
US corn prices in Chicago rose to more than $US4.24 a bushel last week, a rise of 10 per cent, while July soybeans added five per cent to more than $US8.50 a bushel.
Wheat harvests in Ukraine, southern Russia, southern central Europe and China are being stressed by lack of rain and analysts are cutting their forecasts for this year's EU crop.
The recent Australian summer harvest was slashed to just 10.5 million tonnes, cutting exports, which were hard to replace from other markets.
The United States Department of Agriculture last week left unchanged its estimate of the 2007-08 Australian wheat production at 22.1 million tonnes. That compares to the drought-ravaged 10.5 million tonnes of the 2006-07 crop and the huge 25 million tonne 2005-06 crop.
Traders said the rise meant wheat futures prices have now risen by around 56 per cent in the last 12 months. The drought that slashed the size of the Australian harvest and exports gave it an initial kick. This came as it dawned on the market that world stocks were much lower than previously thought and heading that way.
Prices last week rose initially after the United States Department of Agriculture said rain had delayed harvesting of the US winter wheat crop while outbreaks of several crop diseases had been noted.
That cut the US winter wheat harvest to an estimated 1.609 billion bushels, just under last May's forecast of 1.616 billion bushels but more than last year's drought-damaged harvest of 1.298 billion bushels.
An expanding dry is slowing crop growth and cutting yields in The northern Great Plains corn growing areas of the US (wheat is concentrated in the lower and southern parts of The Great Plains).
That's behind the upward pressure at the moment in corn prices, which have remained high because of that growing demand from the subsidised ethanol industry.
Drought is hurting wheat harvests and crop sizes in places like Slovakia, Romania, the Ukraine and parts of southern Russia, so it's a case of every little bit helps, or hurts. Western Europe's harvest is also being reduced in EU forecasts.
According to the USDA, Ukraine is expected to produce 14 million tonnes of wheat during the marketing year that started June 1. That's 20 per cent down from its May forecast.
The USDA expects US farmers will produce 595 million imperial tons of the wheat. That's only 160,000 tons lower than its May estimate due to the excessive moisture in the Southern Plains.
But the size of the wheat plantings was down at the start of the harvest because of higher plantings by corn farmers, many of whom switched to the grain or cut their wheat plantings.
That was because of firmer prices caused by the growing demand for ethanol, which is expected to consume around a third of this year's larger corn crop, if the dry weather doesn't cut production.
Should that happen, then corn prices will get a hurry along, just like wheat has at the moment.
