AFTER a wild ride on the markets over the past couple of months, the wheat market now looks oversold.
The wheat market remains unpredictable, and ultimately volatile, with APW1 prices dropping from $470 per tonne on January 3 to $395/ton March 16 according to Rural Bank.
H1 has mirrored this movement, dropping from $510 to $450/t, however ASW1 has stayed relatively constant - trading in a range between $350 to $365/t
CBH Group chief marketing and trading officer Jason Craig said despite volatility in the United States Chicago Board of Trade wheat futures, the wheat market in Western Australia had traded sideways since mid-January, on the back of ongoing international demand in South East and North Asia, which was likely to continue in the near-term.
"We are expecting prices to remain volatile as the international market focuses on Australia's weather with a drier than normal start likely to see the market increasing purchases of old crop for shipment into the new season, a positive for local pricing," Mr Craig said.
While wheat prices have been a jagged, sporadic line since COVID-19, they have been made much worse since the Russia-Ukraine war and continued uncertainty over Black Sea trading.
With the WA market reliant on export trade, local prices mirror offshore markets more than the east coast, and international changes or supply shocks are felt more greatly.
"Economic uncertainty across the world will and is impacting commodities, and grains are likely to be caught up in this negative sentiment," Mr Craig said.
"In the event of a world recession consumers will look to cut expenditure and basic food items, albeit to a lesser extent, are also likely to be impacted.
"This may hold back any significant increases in prices in the medium term."
Increased global wheat supply estimates from the US Department of Agriculture, paired with a strong domestic supply, has resulted in a lowering of wheat prices.
With a record crop in Russia, and the renewal of the Black Sea Grain Initiative on the weekend, Rural Bank agricultural analyst Sean Hickey believes the 100 million tonnes Russia has produced will flood the market.
"Those international factors and a few of those domestic supply factors really pressure prices," Mr Hickey said.
However, the falling Australian dollar has made Australian wheat more competitive in the last fortnight - helping add a small amount of stability into the market.
With the wheat market continuing to be unpredictable, growers are opting to hold onto wheat until prices begin to lift.
Australian farmers are between 60 to 65 per cent sold in most grain commodities.
"Growers with over half of their crop sold now are a little bit happier to sit back and hold on to what they've got, and maybe wait for a more appreciation in price given the bearish market we've seen over the last couple of months," Mr Hickey said.
After three strong seasons, farmers are financially in a position where they can afford to hold on to their grain in the expectation that prices might move higher.
Mr Hickey believes more stability could come into the market for the rest of March with growers deciding not to sell rather than absorb losses, and global suppliers opportunistic buying.
"With the massive price declines that we've seen, we might start to see traders a little bit happier to kind of jump into the market," he said.
Shipping capacity is also weighing heavy on prices, with it hard to get shipping slots prior to June, making it more difficult for exporters and importers to make deals.
Wheat prices have stayed buoyant as domestic and international markets have restocked their wheat supply.
By the end of 2020, a large number of livestock producers had used up their feedstock during drought, hence there continues to be strong demand for feed-grade wheat and barley in an effort to restock during favourable seasonal conditions.
"We probably expect that high supply will now begin to stabilise, so we don't expect further increases in demand, particularly at a domestic level," Mr Hickey said.
"It will be interesting to see what happens at the international level- we expect the US to begin restocking as well, they're forecasting improved conditions following a couple of drought years there too, so that could prove supportive of international prices."