The first trading week of the year saw wheat futures continue to rally for a couple of days, pushing to new highs since 2014, but from mid-week onwards the market faltered, leaving prices slightly lower than for the start of the calendar year a week earlier.
Corn and soybeans are still pushing higher though, where the United States dominates exports, and where supplies are tight against ongoing strong demand, largely driven by China. In the case of wheat, the US does not dominate as much, and we have our own big crop hanging over the global market to temper the need for prices to continue rising to ration supplies.
Those who are still holding wheat unsold are now asking whether they should sell now, or hold on for higher prices later in the year. This is always a hard one, and the answer may well differ in different parts of the country.
What we know is that our export pathway is fully booked until later in the year, and we probably won't ship all the exportable surplus before next harvest anyway, particularly from NSW.
That means supplies for the domestic market are plentiful, and even if drought returns, rising grain demand later in the year will firstly be met by stocks from the 2020/21 harvest, and then by new crop supplies.
Therefore, a domestically driven price rally is unlikely during 2021. An export driven price rally is more likely, and as we have seen in the past four weeks, some of that will transfer into our market. However, at the moment the global wheat market has little to drive it with the major northern hemisphere winter wheat crops all in dormancy, and the market watching to see where our big crop will head.
In the export-based market of SA the cash market is above $300 a tonne still, and WA prices are $25/t above those. In those markets the case to sell now and move on is stronger. In the eastern states, where port based prices are $10 to $15/t lower, it is harder to suggest selling now.
SA and WA prices are high for this time of year. They are as good as they get without a drought, so why hold grain and punt that prices will rise?
When prices are high, why take unnecessary risks? One approach would be to sell now, and if the market does rally, capture it with forward sales (physical or via swaps/futures) for the new season crop. Why take the high risk approach of trying to capture the top of the market on two crops, when old crop prices are already historically very high?
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