Futures peak pushes up cash market

Futures peak pushes up cash market


High futures prices will underpin our cash market at well above $300/t.


A wetter than normal winter is pushing Australia towards another big crop. Revised estimates are not likely to be factored into the global balance sheet for some time, but it will be one reason why global wheat prices might not be at current levels by the time our headers begin to roll.

Most of the Australian wheat belt had better than average to very much above average rainfall in July. For the May to July period it is only Victoria and the Mallee in SA which is average to below average. There are other pockets in WA and on Eyre Peninsula that are around average, but in the main the season is looking good.

We ended last week with December futures on $A356.78 a tonne. This is just $A2.79/t below the peak price set on July 22, which in turn just took out the high set in May. Prices like this will underpin our cash market at well above $300/t.

While Chicago Board of Trade futures remain at elevated levels, so too will our cash market, even if we continue to suffer from exceptionally weak basis levels. It will be a decline in the CBOT price base that will do the most damage to our prices.

There are a couple of other factors that will be at play at harvest time as well. If we have another big crop, export shipping slots will fill fast. Growers will be willing sellers at high prices, so those slots will be executed. Then we have a problem. With very high wheat prices, and plenty of grain, the trade won't be willing to finance ongoing purchases that won't be executed for some months.

Low interest rates will help, but it will be the amount of capital tied up in inventory that is likely to slow purchase rates as shipping slots are covered.

A big crop, with demand drying up, will put pressure on our market as harvest progresses. Then we look at where the global market might be headed.

At the moment global market is fully pricing in the issues in the United States and Canada. Soon that will become history. At the same time Black Sea wheat is competitive into global markets, allowing them to control the export market, and put pressure on prices.

Growers who have forward sales in place are well placed to capture the best of the market. Those growers will also be locking in strong harvest cashflow without having to compete for sales with every other grower at that time.

Post harvest it may be well into 2022 before the market needs more wheat, and prices will be determined by 2022 growing season factors, not the issues from 2021.


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