Black Sea uncertainty remains

While Russian troops stay on the border, and as NATO countries also supply arms and troops on the other side, the tensions will remain, and the risk to the flow of wheat exports from the whole Black Sea region will remain.

If we see a de-escalation of the situation with troops being moved back from the border, prices could fall sharply. That may happen at any time given the diplomatic work being undertaken behind the scenes.

At the end of last week futures were up slightly, but at 786.75 US cents a bushel, prices were still well below the peak of 831.5 USc/bu seen in Tuesday's trading last week.

Another element in play is the value of the Australian dollar. We have started this week with the dollar below 70 US cents relative to the US dollar. Not only have we eased against the US dollar, but we are down against other currencies as well.

The net result is that a modest increase in CBOT futures has given us a $A13.97 a tonne lift in the $A value of CBOT futures. Other parts of the global market are probably closer to the more modest gains being seen in the US market. That in turn is better for generating demand from importers.

Many growers will have sold all their 2021/22 wheat and will be more focused on the economics of wheat growing for the coming season.

At this stage December futures are running at about the same level as spot futures. Both March and December futures are running close to $A414/t. With the same basis levels, new season wheat should be priced at close to the same values as current old season wheat prices.

Current basis remains very weak though, because of the high prices themselves, but also because of our record crop and a well booked shipping stem limiting the ability for our exporters to write new business. What we don't know is how well those who are holding the export shipping slots are covered. It does limit competition though.

If we revert back to average production, and pressure on logistics eases, basis levels should improve. New season wheat prices may end up better than old season prices at the same futures levels.

That is positive for the outlook for this coming year, but only while futures prices hold up. This is where a well thought out forward sales program using swaps, options, futures or forward cash sales should be coming into play.

There is really no guarantee that wheat prices will still be hovering in the high $300s or low $400s come harvest time.