THE MANY Australian farmers who decided not to sell cereal grain at harvest due to what they perceived as low prices are nervous after world wheat futures markets collapsed this week.
After modest rallies through February, this week the benchmark Chicago Board of Trade (CBOT) immediate delivery wheat contract has fallen to its lowest level since August.
Analysts say the sheer volume of wheat across the globe, combined with a lack of major production risk at present in northern hemisphere crops has seen a steep decline in US futures, which have fallen $5-10 a tonne since Friday in Australian dollar terms.
The falls have not yet impacted Australian values, with the ASX March futures contract still at $229/t.
However, Commonwealth Bank senior analyst Tobin Gorey said he expected Australian wheat prices to fall in line with the rest of the world.
“Australian wheat is starting to look a little expensive compared to other origins, especially with the modest gains in the Aussie dollar,” he said.
“I don’t think this inactivity in pricing can continue for long, Australia still needs to export a lot of wheat.”
And the market does not think the fundamentals will change any time soon, with an inverted market, where the old crop is more valuable than new crop, in place at present.
Dan Basse, president of agricultural research business AgResource, based in Chicago, said stored northern hemisphere wheat was also now being sold, adding further pressure to prices.
“The farmers in places like Russia have been tight holders of grain, but in recent weeks we have seen more movement of grain there at lower values.”
He said the market had sensed that weakness and key indicators, such as the recent Saudi Arabian wheat tender, which was renegotiated at a lower price, showed the prevailing market sentiment was bearish for prices.
“This is unlikely to change until we see a weather problem that changes the stocks situation and this abundance of wheat we see.”
Peter McMeekin, Nidera Australia origination manager, said the northern hemisphere crop had emerged from dormancy with few issues.
“Reports emanating from Europe suggest that the crop has emerged from the winter relatively unscathed,” he said.
In the Black Sea region, he said the winter crop was in better condition than last year, while the US crop is also reasonable, although there are some small issues with the hard red winter wheat crop.
“However, they are forecasting rain through the hard wheat area so that takes any potential bad news out of the equation there,” he said.
Mr McMeekin agreed with Mr Basse on the need for a weather event to alter pricing dynamics.
He said farmers with stored grain waiting for a significant lift in prices were now waiting for a weather event to cause problems with the crop in a major wheat producing region.
“The market will not push up until we see that big production hiccup.”
Mr Basse said Australian farmers holding grain would need to look for small, supply-based premiums.
“They are holding grain because they think it is too cheap but there is an abundance of grain.
“Prices are likely to remain range-bound and the opportunities will lie with finding a short-term spike with a particular buyer wanting grain for immediate delivery.”
He said the issues confronting wheat were similar in the feed grain complex.
“It is possibly even more of an oversupply situation with corn and barley,” he said.
“There is no shortage of feed grain across the globe and prices are reflecting that.
“It is hard to see a lift in prices when you have a big market sector such as the Chinese corn market declining by 40 per cent over the past nine months.”