Grain Market Update - Wheat (November 2020)

The following graph shows the movement in Chicago (CBOT) December 2020 Wheat Futures price expressed in A$ and the 2020/21 APW Multigrade price delivered Port Kembla. Also included is the 10 year average CBOT December Futures price expressed in A$ and the 10 year average APW Multigrade price at Port Kembla.

Currently the APW Multigrade price is $300/tonne delivered Port Kembla, while the CBOT December 2020 Wheat Futures price is trading at A$307/tonne equivalent, resulting in a basis of -A$7/tonne. This compares with a basis of approximately A$99/tonne at this time in 2019 and the 10 year average basis of A$58/t, suggesting that there will be a significant surplus to domestic requirements available to export from this harvest.

The present APW Multigrade price delivered Port Kembla is A$4/t above the long-term average for this time of year. Most wheat paddocks in the region are expected to yield in excess of 4-5t/ha, vastly greater than the long-term average. This would normally indicate that the price should be significantly below current levels due to an oversupply.

The reason for this robust domestic price is the relatively high international price. This stems from dry conditions in the Black Sea area and some regions in North America, where there are concerns regarding the establishment of their 2021 winter wheat crop.

International prices are significantly higher this year compared with this time last year, with CBOT futures trading around US590c/bu compared with around US510c/bu last year. This 16% increase in CBOT prices has been tempered by an increase in the A$/US$ exchange rate from US 68c to US 73c over the year.

Due to the current rainfall patterns and predicted extended harvest, weather damaged grain is highly likely. Growers should have a plan in place to minimise the financial impact of such grain, by utilising on farm storage, or multigrade contracts taken out when grade spreads may be more favourable, than future spreads in the event of damaged wheat being readily available.

The current APW Multigrade price at Port Kembla is a Decile 5 price, calculated on prices from 2009 to date. The decile price this time 12 months ago was approximately 9. 

Assuming freight to port of $38/tonne, the present Multigrade price represents $262/tonne local depot, which should be well in excess of clients’ Break Even Price at expected above average yields.