Wheat prices edge lower

Wheat prices edge lower


Grain
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Australian wheat prices have continued to edge lower despite CBOT futures retaining a sideways trading pattern.

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Malcolm Bartholomaeus.

Malcolm Bartholomaeus.

Australian wheat prices have continued to edge lower despite CBOT futures retaining a sideways trading pattern. However, the price falls remains slow and steady, not providing any shocks to our market, and leaving prices very high relative to US future prices, even for a drought year. Harvest is progressing across all states, with GrainCorp reporting that harvest is nearly complete in Queensland and northern New South Wales.  Quality has been quite good despite some recent rainfall events. In southern New South Wales harvest is gathering pace, with reports of yields being better than expected.

In Victoria harvest is well underway, although delays were experienced with last week’s rains, and to date much of the harvest has been barley.  Wheat harvest should be gathering pace from now onwards. In South Australia early districts have finished their harvest, while later districts are just starting on wheat.  Rain has caused delays, but there are also reports of reasonable quality, and better than expected yields. The Western Australian harvest is progressing well, and with little rain in the forecast should rapidly progress to 50 per cent finished. Some traders were struggling to get wheat accumulated for early shipping deadlines because of the late start to harvest in some regions. One theme seems to be that given the season, crops are yielding well. It has been 10 years since we have had a season that has challenged us nationally, and since then agronomic practices have evolved significantly.  The end result is that where crops would have been abandoned previously, they are now producing modest yields of quality grain. 

One theme seems to be that given the season, crops are yielding well.   It has been 10 years since we have had a season that has challenged us nationally, and since then agronomic practices have evolved significantly.  The end result is that where crops would have been abandoned previously, they are now producing modest yields of reasonable quality grain.

The final size of the Australia crop will still be hard to estimate, but one would expect it to come in a little better than some of the lower projections we have seen.

What will make it hard to assess final production will be the amount of wheat stored on farm.  We still don’t have good systems to track this, and it will leave some doubt over final supplies available for key domestic markets for the coming 12 months.

We are now just a few weeks away from the wheat supply for 2019 being locked in.  Wheat prices are still very high, and while they may ease for a little longer, there is no reason for wheat prices to return to global price levels until we get the bins filled properly from the 2019 harvest.

At this stage December 2019 futures are running at close to 545 USc/bu.  This is 45 USc/bu, or A$22.85 per tonne, above December 2018 futures prices.  

If we assume a return to normal basis levels by the time, we get to the 2019 harvest, then current futures prices are suggesting a cash market of around $300 per tonne in South Australia, $10 per tonne more than that in New South Wales and Victoria, and $25 per tonne above that in Western Australia.

If we simply compare current season prices to those potential price levels for 12 months time, the potential year on year price declines range from $25 per tonne in Western Australia, to $140 per tonne in New South Wales.  Victoria would be looking at downside of $110 per tonne, while South Australian prices would fall $70 per tonne.

Without a sharp lift in global wheat prices during 2019, Australian wheat prices are set for a major price fall between now and the end of 2019.

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