The global wheat balance sheet is tight, yet Russian wheat hitting the market and a larger corn crop is weighing on global prices.
More recently, expected production in major exporters of Canada, Argentina, and here in Australia have declined, yet we haven't seen a response in the historical benchmark for global wheat prices, Chicago Board of Trade (CBoT) wheat futures, which remains near contract lows.
Thankfully Australian prices are running their own race trading at strong premiums to CBoT wheat.
The question is whether this price difference will be sustained?
If the price difference isn't sustained, will CBoT act as a leading indicator to Australian prices (ie. Australian prices fall leading into our harvest), or is CBoT oversold and due to bounce higher?
The Australian crop is shrinking due to drier conditions and so requires some premium to ensure enough grain stays in Australia to cover domestic requirements.
We have seen this already with higher prices in the dry areas of north eastern Australia as domestic users need to pull grain from further south than normal to cover their demand.
We also have a full export pipeline through the second half of this year which is when we normally see less demand for Australian grain as offshore buyers switch focus to northern hemisphere supply.
This past week South Korea purchased Australian ASW9 (ASW1 grade wheat with protein over nine per cent) and H2 wheat which gives us a guide to Australian export prices.
They paid US$295/t delivered to their ports (carry and freight or CNF) for the ASW9 and US$335/t CNF for H2 wheat.
This works back to approximately A$395/t and A$455/t for the ASW9 and H2 wheat respectively when converted to FIS WA equivalent prices and may indicate Australian prices can continue to perform relative to CBoT wheat.
The result of a rapid export program and domestic use has Australian grain stocks forecast to be relatively tight as we enter the coming harvest, despite three record Australian harvests.
Australian grain prices are remaining resilient with dry conditions and less grain available for sale, coupled with a global demand profile requiring Australian wheat, being supportive factors.
The behaviour of Australian growers will likely have a large impact on price movements this harvest.
If growers panic sell hitting cash bids, it may pull prices lower.
If growers understand what their grain is worth and offer it for sale at their price, there is potential for prices to continue performing versus CBoT wheat.
If you have grain for sale in warehouse or stored onfarm, offer it for sale on Clear Grain Exchange or igrain so all buyers can see it and you realise its true value.
For more information or to see what values are trading contact Clear Grain Exchange on 1800 000 410 or email support@cgx.com.au
