Rising currency creating headwinds

However, these gains have barely flowed through to our market because of the headwind of a rising currency. By the close of trade on Friday last week, Chicago Board of Trade futures had rallied by 2.57 per cent for the week, but the currency was up 2.86pc. The net result was an 80 cent a tonne drop in the $A value of CBOT futures.

There are three factors that determine Australian wheat prices. One is the global wheat price, and we still use CBOT wheat futures as a gauge of that important parameter. The other big one is currency. That determines the $A value of our exported wheat is when it is converted from US dollars.

The third component of price is basis. This is often not a big driver of price unless we see drought here in Australia. Then we see local prices move as high as import parity, with that "domestic premium" being basis.

So, what factors drive basis in a normal year? Storage and handling costs to get grain from farm to vessel is a big one, and we lose ground internationally when our costs rise faster than elsewhere. Another is the bulk shipping freight rate.

So far this year we have seen December futures having a daily closing high of 593.5 USc/bu in January. We have also seen a very low Australian dollar, plunging to 57.44 US cents in March. International freight rates measured by the Baltic Dry Index bottomed out near 370 in May (it is now back to 1488).

It is up to the Australian grain industry to capture the opportunities that the various component markets deliver. Growers rely on our exporters to minimise execution costs from farm to our offshore destinations, given that our largest exporters control the various bulk handling and export facilities, and could capture international freight rates in some cases.

Exporters can also capture favourable exchange rates and futures prices, and pass them back to growers via forward prices. Importantly, growers can also work for themselves and capture favourable exchange rates, futures prices and basis levels.

Unfortunately many growers no longer know how to do that, and our financial services system has removed a lot of products that were easily accessible to farmers, all in the name of protecting the consumer.

Growers need to begin telling the government, and the finance and grain trading industries, what we need. It may even be time for more growers to take control of their own storage and handing at the farm level with new, efficient systems of moving grain from farm to port when it is needed for export.

It's time for change.