WITH all the focus on the shortage of grain on the east coast the sluggish international grain market has flown largely under the radar in Australia.
However, analysts are warning farmers in the export-focused grain producing states, South Australia and Western Australia, will have to contend with prices much closer to world parity without the roaring basis premium boosting east coast prices.
Malcolm Bartholomaeus, Bartholomaeus Consulting, said he expected basis in the two western states to dip, particularly when harvest starts in earnest.
“When the headers start rolling and growers start selling I would imagine pricing will come under pressure,” Mr Bartholomaeus said.
“The harvest selling will force prices down closer to international parity.”
Mr Bartholomaeus said currently Chicago Board of Trade (CBOT) wheat futures, used as the benchmark for calculating basis figures, were slightly behind physical values trading across the world.
“This is primarily due to the price the Russian are getting for their wheat in the Middle East, the relatively strong Russian currency is keeping those prices up.”
Chicago futures have picked up this week on a combination of small concerns regarding weather that may impact the 2018 northern hemisphere crop and investors buying back short positions.
In good news for SA and WA growers, Mr Bartholomaeus said prices would not simply fall off a cliff come harvest.
“There is a certain amount of inelastic demand and grain exporters will have to purchase grain to honour their shipping slots so that will be supportive of pricing.”
He also said potential demand for intra-country shipments of grain, should the SA and WA discount to Brisbane and Newcastle grow too large, would also keep prices from sinking too low.
Basis has been the major driver behind SA and WA prices lagging behind the east coast for much of the season.
Earlier in the month the positive basis for the Newcastle port zone was $106 a tonne, which fell to $73/t in the Kwinana port zone servicing much of the WA wheatbelt down to just $50/t in the Adelaide port zone.
Mr Bartholomaeus said with harvest pressure, even allowing for the continued demand falls in the figure could be expected.
“You could see the Adelaide number get down as low as positive $25/t.”
He said this would bring prices for wheat back to just over $200/t.
“It could work out to an upcountry value of $210/t or so in South Australia if basis was to come back.”
In spite of the lower prices on offer, farmers in SA and WA in general are likely to be far happier with their 2017-18 performance than their counterparts in drought ravaged Queensland and NSW.
While there are areas, particularly in northern WA, that are severely moisture stressed, large tracts of both states’ cropping belts are expecting average to slightly below average yields, with standout regions, such as the south-east of South Australia and WA’s Esperance and Albany port zones likely to do better.
Cheryl Kalisch Gordon, Rabobank senior grains analyst, said summer cropping prospects would be critical in determining east coast grain values this year.
Already, prices have fallen for winter crop in line with strong rainfall in key summer cropping areas as feeders factor in a sorghum crop into supply and demand estimates from March onwards.
“There have been good falls in some areas and if this continues it may have a negative impact on winter crop prices leading into harvest,” Dr Kalisch Gordon said.