Wheat crop blowing in the wind

Despite the dry weather continuing, and yield prospects declining, it seems strange that local wheat prices haven’t taken off. There is good reason for this, with declining international markets keeping a lid on values, and we can see that in basis terms, wheat has had a strong rally.

Looking at some of the wheat quotes around the country, sitting around $400/t for APW in South Australian ports and $420/t in Victoria you would be forgiven for thinking prices haven’t moved with the creeping dryness affecting the east coast.

Further north, we can see the impact more strongly, with APW in the Newcastle zone quoted at $450/t, around 12% stronger than last harvest. Over in the West prices are similar to those in the South, with $405/t available last week. WA is an export market and doesn’t tend to get the dryness premiums we see in the east where there is more local demand.

Figure 1 shows that APW prices have been creeping higher in all ports over the last three months, but they are still not as strong as during times in 2022.

As outlined in Friday’s Market Comment, strong wheat supplies out of Russia are not only keeping a lid on international prices but forcing them lower. Figure 2 shows that while Australian wheat prices have been creeping higher, international values have been on the decline.

While Soft Red Wheat (SRW) in Chicago is back at pre-war levels, it is still historically strong. Although some of that strength in the price in our terms comes from a weaker Australian dollar.

If we look at wheat ‘basis’ or the difference in Australian values (as indicated by ASX Wheat Futures, and SRW in the US), we can see that our prices have indeed had a ‘drought rally’. Since July ASX Wheat basis to SRW has rallied around $100/t and now sits above $100 for the first time since mid-2019.

The market is working off a much tighter wheat supply this year, and most of the basis rally looks to now be factored in. The upside risk is reverting back to international markets.

What does it mean?

Grain consumers looking at current prices thinking that they are not too bad need to be wary of a rally in international markets. While initially basis would squeeze up with an SRW rally, reluctant sellers might see the basis return to $100, resulting in $500 wheat.

For producers, there is some scope for a harvest pressure basis decline, with selling having been slow for much of the last three months.

Have any questions or comments?

We love to hear from you!

Print This Post

Key Points

  • Local wheat pricing increases have been modest despite the dry conditions on the East Coast.
  • Strong wheat supply out of Russia is putting downward pressure on international prices.
  • ASX Wheat basis to SRW sits above $100/t for the first time since mid-2019.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: ASX, CME, Refinitiv, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!
WA wheat field
Grains & Oilseeds

Talk is cheap

The USDA recently held their global outlook forum, a two-day conference to release forecasts for domestic US and global supply, demand, and prices. Word on

Read More »

Want market insights delivered straight to your inbox?

Sign up to the mailing list to get regular updates to new analysis and market outlooks

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
Listen to the podcast

Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin
SERVICES AND CAPABILITIES STATEMENT BROCHURE

We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.