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Thursday, March 17, 2016

The winter of discontent in wheat

By Andrew Whitelaw  |  Source: CBOT, ASX, Trade

Key points

  • CBOT tends to hit its low and high points during February and March.
  • ASX basis levels reach the highest average during the Australian seeding time.
  • The Melbourne ASW price is creeping below the 2005-present average.

2016-03-17 Winter Of Discontent Fig 1

2016-03-17 Winter Of Discontent Fig 2

2016-03-17 Winter Of Discontent Fig 3


There is no denying that the Australian wheat market is well and truly in the doldrums, with prices looking increasingly unattractive. The past will not always tell us what will happen in the future, but it can provide an insight into when prices tend to rise or fall throughout the year. In this analysis we will examine the price movements in CBOT, ASX basis and Melbourne wheat.

The chart in figure 1 displays the monthly average price for CBOT wheat from the period 2005-present. In this chart we can see that the long term average price for CBOT wheat sits at around 600c/bu. However, since mid-2014, the market has drifted substantially below 600c. When we look throughout the year it is apparent that the biggest range in price tends to occur within the Feb-Mar period. This makes sense as the market watches the northern hemisphere crop develop, and at this point has an indication on whether it’s a good or bad crop.

At an Australian level we start to look at the ASX basis to CBOT, or the premium or discount to CBOT. In figure 2, we can see that average basis level from 2005-present sits between $25 and $35. The average basis level tends to increase around the end of seeding time, which relates to both potential concerns about the crop and traders taking cover early. As would be expected basis levels can have a wide range during harvest, dependent on the volume of crop available and grower selling rates.

In figure 3 we examine the Melbourne prices for ASW. The price has currently creeped below the average 2005-present. The range during the early part of the year can be wide, which closely follows CBOT prices. The average price over the year has tended to rise at harvest time, with the range being at its narrowest during the period September/November.

Looking forward the picture does not look all that promising for wheat in the medium term, with the northern hemisphere crop having made it through to the middle of March with little in the way of issues developing. This may not be the news growers want to hear. However, it is what it is and planning is required to adequately deal with this situation. 

On the 4th April, Mecardo will be joined by industry leaders in the grain trade to discuss options for developing a marketing strategy for a low priced environment. This online webinar is free of charge, and gives you the opportunity gain some additional insight into the market and ask any questions.

Register here 

What does this mean?

We are more than halfway through March and it looks increasingly like there will be limited issues to the global crop. The lack of any bad news from the northern hemisphere will likely lead to CBOT continuing to trade sideways between now and mid-year.

At a local level there is still a substantial amount of wheat left unsold from the 15/16 harvest, with likely increased selling prior to seeding, there could be pressure on local prices due to a weakening of basis levels.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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