The weakness shown in international wheat prices recently has been well documented. The delivery of a good winter wheat harvest in the USA will always put downward pressure on prices, but it’s been coupled with increasing global stocks. The supply situation isn’t as rosy here, and it’s starting to show in our price premium.
The fall in
Chicago Soft Red Wheat (SRW) Futures has been one of the bigger moves over the
past two months. Admittedly, the fall
was coming off a peak that was driven by actual issues with future supplies out
of the Black Sea region. After the
Russian and Ukrainian production cuts were accounted for, the USDA lifted
forecasts for other major producers, most notably the US.
Figure 1
shows SRW now sits on a solid support level, which in our terms is close to
$300/t. SRW hasn’t spent much time below
$300 since breaking through way back in April 2021. The good news for local producers is that the
US winter wheat harvest is around 80% complete, and selling pressure should
slow down.
Locally the
production picture isn’t as good as in the US.
The CSIRO has a product called ‘Wheatcast’ ( read
more here ) which updates yield forecasts fortnightly. It also has maps that show where production might
be limited by water availability.
Wheatcast
is forecasting an annual national yield of 2.29t/ha. This is right on the ABARES crop report
forecast. Wheatcast also gives wheat a 79%
chance of exceeding the long-term average of 1.82t/ha.
Wheatcast
also shows a map of plant available soil water, and where yields might be
limited by low water availability. Large
parts of WA are still in deficit, but much of NSW is looking ok.
Looking at
the Wheatcast data, it seems Australia might still be on track to produce the
ABARES forecast 29mmt wheat crop. This
would be 3.13mmt larger than last year.
Figure 1
shows ASX wheat futures haven’t fallen as hard as SRW, pulling up at around
$340/t. We can see in Figure 2 that ASX
basis has moved back out to $30-40/t, after having been as low as zero during
the SRW rally.
What does it mean?
During the last harvest local basis to SRW traded in the $30-50 range, and that is around where the market is pricing the new crop now. If crop forecasts come to fruition we would expect basis to be weaker when harvest pressure comes on.
Key Points
- US SRW has been falling, but ASX has held on to post a good premium.
- Crop yields are still looking like achieving ABARES forecast wheat production.
- A larger wheat crop should see weaker basis come harvest time.
Click on figure to expand
Click on figure to expand
Data sources: CME, ASX, Mecardo
