China continues to buy up Australian wheat in large volumes in spite of a strong positive basis, meaning Australian wheat is more expensive than the benchmark US futures price.
In October Reuters announced China had purchased around two million tonnes of new crop Australian wheat and there has been steady demand, despite the current drought-induced premium for Australian wheat at present.
Andrew Whitelaw, Episode 3 commodity analyst, said the combination of Chinese and domestic demand had kept Australian wheat prices at solid levels, with values of around $340 a tonne for APW grade wheat delivered port in southern states ranging up to higher figures of $380/t to $400/t in both WA and the eastern seaboard, where there is more of a drought premium.
"For a while there the basis levels were on par with what we saw during the 2019 drought, whereas the actual production levels will be significantly better this year, meaning the basis should not get so high," he said.
"It appears current values are reasonably strong and could attract grower selling reasonably early in the piece."
"I know there is a feeling among growers that there is generally a harvest discount in pricing but looking at basis levels maybe you would not hold out too long looking for price rallies as the crop looks like being a lot larger than a true drought season."
"There are definitely regional shortages, northern NSW and Queensland haven't had great seasons and parts of WA are also lean but there will be some fairly reasonable harvests in southern zones by the looks of it meaning the country as a whole will grow a lot more grain than in those seasons where the drought was far more extensive."
He said the Chinese buying patterns were being closely monitored by the world wheat trade.
"Along with the Aussie wheat they've bought they've also been active buyers of French wheat, it all appears they are willing to be owners of grain rather than hanging out and seeing if the price comes down later."
Australian new crop wheat, which is expected to return to familiar quality parameters this year after the weather caused downgrades last year, which is likely to appeal to Chinese end users wanting higher protein, low moisture wheat.
The early Chinese purchases may put pressure on those wanting to buy Australian wheat, given the big year on year drop in production.
Last year, according to the Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) the national wheat crop was 39.2 million tonnes, this year estimates vary between 25 and 28m tonnes.
With China aggressively targeting Australian grain, other traditional buyers of Australian grain such as Indonesia and other south-east Asian nations may have to purchase at price levels higher than they hoped in order to be certain of supply.