Rising oil prices have boosted grain and oilseed prices, as the link with biofuel drags cereals from their lows. Growers sitting on old season grain are still waiting for the higher international prices to flow through to local values.
On Monday morning, Brent Crude Oil hit another high of $105/barrel. While all the focus has been on input prices the output side looks to be reacting now aswell.
Figure 1 shows CME Soft Red Wheat (SRW) futures have gained over $40/t over the last month, sitting at around $310/t, which is close to a 12-month high. Strong global wheat production, and largely favourable growing conditions in key northern hemisphere growing areas, are the factors keeping a lid on further gains.
Locally wheat prices have been slower to react. Figure 2 shows the ASX Wheat Futures premium to SRW, which has been in decline. Figure 1 shows ASX prices have rallied, but we can see from figure 2 that the rally has been slower than SRW. The premium for ASX wheat, which has been running at strong levels given the size of the crop, falling back to $20/t.
It’s not unusual to see local premiums weaken when international values rise sharply. Buyers are reluctant to increase prices sharply in case markets turn south, and some sellers might just be happy with a higher price. There might also not be much wheat changing hands at weaker values.
For canola the story is similar, but is worse if you’re a seller. Figure 2 shows a strong increase in ICE Canola, which was up $50/t between yesterday and the beginning of the latest Middle East conflict flaring up. Interestingly, Matif Rapeseed, which is based in Europe, has gained around $20/t but has not streaked ahead like crude oil and to a lesser extent wheat.
Locally canola prices have done very little. It is strange to see demand not increasing, but perhaps it’s a factor of having little canola left unsold in the system, or the rising cost of freight. It’s hard to know but given the positive pressure from oil and stronger international prices it is hard to see local canola prices declining in the short term. Now that there has been some correction in ICE prices this morning (17th march) the downside risk for local prices can be tested..
What does it mean?
At the moment both canola and wheat are a hold. Weaker basis, along with large clouds over costs of production and planting intentions for new crop suggest there might be some potential upside cereals and oilseeds.
Key Points
- Crude Oil prices hit a new high on Monday morning.
- Stronger oil prices have flowed into international wheat and oilseed futures.
- Locally cereal and canola prices haven’t responded as strongly, suggesting some upside.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: Reuters, Mecardo
