There is plenty going on in world commodity markets at the moment. The possible tariffs the US is imposing on close neighbours and China are still being digested by the market, but wheat and corn seem to have escaped most of the impacts. A query we had last week was regarding where wheat prices will be next harvest. Here we’ll tackle some forecasting.
What is the market going to do? This a question we hear often, and it’s not that easy to answer with a simple up, down, or sideways. There are so many factors impacting commodity markets, and we’ve again got politicians altering dynamics.
The easiest way to answer a question on where wheat will be next harvest is to look at futures prices. Futures markets are essentially where buyers and sellers think the market will be at certain points in time in the future.
Commodity markets are pretty well-informed. Markets take into account supply and demand and all the possible permutations we might see and come up with an average scenario.
The wheat market is currently accounting for tight global stocks, and it seems to be saying, stocks are ok, and we don’t expect them to fall much further.
In Australia, we have to account for the exchange rate on top of the wheat market. There is also a futures market for the AUD/USD exchange rate, and if we put the two contracts together, we get the forward curve in Figure 1.
Recent support for CME Wheat and weakness in the AUD have pushed wheat higher, but it still sits close to the bottom of the four-year range. The forward curve shows prices are expected to improve, but really only at the cost of carry.
Should we use $365/t as a budget price for wheat in 2025-26? Most would be conservative and put a bit of fat in the budget, using maybe $325/t. If using $400+ as a budget figure, you’re saying there will be production issues somewhere, which will push wheat higher.
What does it mean?
A good way to assess markets and pricing is to assess how low they can go and, alternatively, how high they can go. A potential downside scenario, If northern hemisphere production is stronger than forecast and the Aussie dollar rallies back to 70US¢, we could have wheat at $250/t. This is possible but seemingly unlikely.
With major production issues in Russia, Europe, or the US, and continued weakness in the AUD, we could be at $450/t. Maybe a bit more likely than the downside, but all this is factored into the futures price.
Key Points
- With planting plans being put together, many are wondering what the wheat price will be.
- The futures markets are forecasting stronger prices, largely at the cost of carry.
- Wheat price possibilities are wide-ranging, and futures markets remain the best guide.
Click on figure to expand
Data sources: Mecardo, CME, ASX
