AUSTRALIAN wheat prices dipped markedly this week, and only premiums above international parity in line with severe drought are keeping these prices above the cost of production.
Port prices for APW grade wheat were as low as $250 a tonne in the Albany port zone in Western Australia, following good rain there yesterday, and as high as $307/t in the Brisbane zone, where there is still a shortage of supply following a long run of dry conditions.
This is well above the Chicago Board of Trade (CBOT) price, which in the past week has hit four-year lows on the back of the Northern Hemisphere grain glut.
Yesterday, CBOT December 14 futures were at US476 cents a bushel, which translates to $A194/t based on an exchange rate of US89c to the Aussie dollar. Aussie wheat prices have fallen around $10/t this week to Wednesday.
Analyst Brad Knight, managing director of GeoCommodities, said Aussie grain producers faced a two-speed market.
"It's a conundrum at the moment, we're seeing the declining world market, but on the other hand there is doubt over Australian production, especially in south-east Australia."
However, Mr Knight said ultimately any regional basis created by a shortage of grain on the east coast would only rise as high as import parity.
These imports, he said, were unlikely to come from abroad, but from interstate.
"There was good rain in southern Western Australia this week, and that locks in crop prospects there, while in South Australia they would like a drink, but the signs are still pointing towards a solid crop."
Mr Knight said the fortunes of NSW and Victoria had switched.
After a good start, Victoria is now the epicentre of drought concerns, while late rain in NSW means overall the state should have a reasonable harvest.
Malcolm Bartholomaeus, Bartholomaeus Consulting, said even if the Australian wheat crop continued to get smaller, the world would cope due to abundant stocks. He also hosed down the theory that there would be a good premium for milling wheats.
"It is not so much that the world is short of milling wheat, it is just that the milling component will be a smaller percentage of what is a near record crop.
"The French are exporting milling wheat, and France was supposed to be one of the worst impacted by downgrading due to harvest rain."
Speaking at a Grains Research and Development Corporation farm business update last week, Mr Bartholomaeus said Australian basis was approaching the levels normally reserved for droughts.
"Even in the Port Adelaide zone, which is a pure export zone with no domestic demand issues impacting on pricing, the market is $60/t above Chicago, and that is obviously much higher in port zones with domestic concerns through Victoria, NSW and Queensland."
Mr Bartholomaeus does not expect current pricing levels to endure until harvest.
"I would say a lot of that high basis level is the trade trying to attract sales.
"Farmers in the drier areas have no faith in the finish to the season and as such are not forward selling.
"There is so much shipping booked by the trade that some buyers may consider it cheaper to pay more for grain and be able to execute their shipping slot than default.
"However, the year will pass and the headers will start rolling and farmers will start selling, so I would expect prices to fall at some stage."
Mr Bartholomaeus said the full impact of the world price fall could be seen by comparing CBOT figures.
"Chicago is down over $60/t on the same period last year, it is a massive fall.
"Normally that would be fully reflected in our prices, but we are only $10/t or so down on last year."
Mr Bartholomaeus said feed barley values were holding up well.
"The average spread between APW and feed barley is $65/t, that is back to $35/t at present, so the feed barley price is doing well."
While painting a gloomy picture in the short-term, Mr Bartholomaeus said prices could rebound quickly.
"The major upshot of the Ukrainian conflict may not be felt this year, but next year, when farmers struggle to attract credit to put a crop in the ground and then to buy the inputs necessary."
He also said the low prices would send a signal to producers in swinging production areas, such as the recently developed parts of Brazil and Argentina, not to plant.
"Once you see less acres being planted, you don't need much to go wrong in terms of 2015 production to see prices lift once more."