CBoT wheat less relevant to Australia

Additionally, the Australian dollar rallied 1.74 US cents or 2.73 per cent over the week which decreased the value of CBoT wheat in Australian dollar terms by an additional A$8.50/t.

The combined impact saw A$22.67/t wiped out of CBoT wheat futures in Australian dollar terms.

But is CBoT wheat relevant to Australian values?

CBoT wheat has been the dominant price indicator tool used to represent global values.

This dominance stems from the US previously being the world's largest exporter.

In the early 1980s the US was responsible for as much as half of the world's total wheat exports.

This means the price of grain in the US has historically been a major determining factor of the price wheat trades in other parts of the world.

The resulting price relationship enabled anyone trading wheat internationally to use CBoT wheat futures to manage their price risk through hedging.

For example, when a buyer purchases Australian grain, they take on the risk of the grain's price going up or down in the time between purchasing and selling the grain.

To mitigate the risk, most buyers will sell the same amount of grain they have purchased on a futures market such as CBoT.

Then when they sell the physical grain, they will simultaneously buy back their futures position.

This is called hedging and helps manage price risk.

CBoT wheat futures remain a major hedging tool in global markets for both buyers and sellers.

This inherently means there remains a correlation between CBoT wheat and Australian wheat prices.

However, more recently US wheat has made up approximately 10-15 per cent of the world's wheat exports.

Black Sea countries have become the dominant world supplier, Europe is now a larger exporter, while Canada and Australia's overall contribution to global exports has remained relatively stable.

The outcome is that we should be using more than just CBoT as an indicator of global wheat prices.

Actual traded values of "physical" wheat on the international market is by far the best indicator of what Australian grain is worth.

Reported bids, offers and trades of Australian grain in international markets indicate prices Australian growers are receiving for their grain do not need to go down to win export business.

Hence the way Australian growers sell their grain is likely one of the largest determinants of grain prices.

Sell a lot of grain quickly into a handful of cash bids at harvest and it pressures prices lower.

Offer your grain at your price to all buyers and it is likely to help support Australian prices relative to traded values in international markets.

For more information or to see what values are trading contact Clear Grain Exchange on 1800 000 410 or email support@cgx.com.au.