Wheat crop

Now that harvest is nearly complete and traders are back from holidays, markets should be starting to fire up again Producers who went to the beach bemoaning the fall in canola prices might have come back to a nice rally, while wheat and barley have shown remarkably little volatility.

Not a lot has happened in the three weeks since we last looked at harvest receivals.  Having said that, in the week before Christmas CBH in WA received almost as much as the entire Queensland harvest.  Figure 1 shows CBH as the biggest handler by a mile, nearly doubling GrainCorp’s entire east coast receivals.

There is more competition on the East Coast for bulk handler storage, and we generally look at GrainCorp receivals for more on harvest pace than total production.   It is safe to say WA has had a bumper crop, while we can see Victoria and SA have struggled, as forecast, with tough seasonal conditions.

In terms of price, the story remained the same over the Christmas/New Year period.  Wheat and barley remain stubbornly confined within a narrow range, while canola has shown more volatility.

Even with a World Agricultural Supply and Demand Estimate (WASDE) Report that saw corn rally to a 12-month high, local wheat and barley prices remain in the $300-350 price range at port (Figure 2), depending on the grade.

The cut in soybean estimates in the WASDE was part of the impetus for higher canola prices on Friday.  Locally sustainable canola jumped around $15 to be priced at $822 on Monday.  It was only just pre-Christmas when canola fell from near $800 down to $750 (Figure 3).  The volatility in canola is crazy compared to cereals, but who knows if it will continue.

It has also been hard to miss the falling Aussie dollar, which usually adds strength to local grain prices, as it makes our grain cheaper relative to competitors.  We’re yet to see too much movement on this front, with ASX wheat losing ground relative to Chicago Soft Red Wheat (Figure 2).

What does it mean?

Holding canola through the dips in the market has worked so far, but it is hard to see too much remaining in the warehouse after this latest rally. GM Canola is still at a huge discount to conventional however, as such it might take a relative price move to draw it out. Cereal prices remain in a holding pattern, with little in the way of international news to move values. A post-harvest basis rally could add $10-20, otherwise, growers will have to wait for some production issues to materialize overseas.

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Key Points

  • Harvest is all but finished with a bumper crop in WA and smaller crops in Victoria and SA.
  • Cereal prices have been relatively steady over the break, but canola continues to show volatility.
  • The lower Aussie dollar should support cereal prices, but an international rally is also required.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: Bloomberg, CBH, Graincorp, AWH, Mecardo

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