Finding a floor or dead cat bounce?

Wheat prices seem to have found a floor and are heading in the right direction if you are a seller. Since moving into the lower $300/t range in our terms, CME Soft Red Wheat (SRW) has had a bounce, with new crop futures now at $340/t (figure 1).

The drivers of wheat market support are the wet weather in Europe, but this is only really offsetting continued good news on wheat crops coming out of the US and Russia. The pullback of corn acreage in the US, as Friday’s comment outlined, should add some support for the grain complex in general.

The average corn yield last year was 11t/ha, but the reduction in plantings is in marginal corn areas. Even if we use a yield of 8t/ha, the 2.55 million hectare reduction equates to 20 million tonnes.  The lower production is roughly double the Australian barley crop, and is a lot of grain.

Figure 1 shows local new crop prices are now moving in sync with US values.  Basis has remained steady around parity with SRW, with ASX futures currently sitting around $340-350/t. Basis around parity is consistent with a better than average crop, and recent rain through significant eastern cropping areas is likely to have helped confirm this view.

Canola prices have managed to hold on to the increases seen during March, both in international markets and locally. Slow, and eventually lower, expected sowing rates in Europe have given canola prices a boost, and our prices have tracked them closely.

Figure 2 shows canola values are still at the bottom of the three year range, but in the absence of a serious black swan event in the oilseed complex, it’s hard to see them heading back to the prices of 2022.