Grain Market Update - Wheat (April 2020)

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

Wheat prices have displayed significant volatility in 2020, due to changes in domestic weather patterns and the decline in the A$/US$ exchange rate. Currently the CBOT December 2020 Wheat Futures price is A$324/tonne equivalent and the APW Multigrade price is $334/tonne delivered Port Kembla, resulting in a positive basis of A$10/tonne. This compares with a basis of approximately A$90/tonne at this time in 2019.

Year on year, the CBOT Wheat Futures price has risen approximately A$70/tonne equivalent, while the PKE APW Multigrade price has fallen by $9/tonne. The volatility in the domestic wheat market has been driven by the good Autumn Break experienced across the eastern seaboard, dramatically reducing the demand for feed grain, plus providing the 2020 winter cropping season with a positive outlook. The CBOT futures price expressed in $A has been dominated by fluctuations in the exchange rate caused by COVID-19.

With the CBOT Wheat Futures price currently A$74/tonne above the 10 year average price and the Multigrade price delivered Port Kembla $67/tonne above the 10 year average, the price outlook for 2020 is very positive, being in excess of A$330/tonne Port Kembla.

The current APW Multigrade price at Port Kembla is approaching a Decile 8 price, calculated on prices from 2009 to date. This compares to a Decile 8 price at the same time last year.

Assuming freight to port of $38/tonne, the present Multigrade price represents $296/tonne local depot, which should be well in excess of clients’ Break Even Price at budgeted yields.

The current Multigrade price looks to provide a good starting point for those who forward sell wheat at this time of the year. However SWAPS should also represent good value, due to the low basis reflected in the Multigrade price. While SWAPS don’t lock in an actual price like Multigrade contracts do, they offer more flexibility because they don’t lock in the basis. SWAPS (A$ based CBOT futures price) provide a hedge against declining CBOT futures and/or a rising A$/US$ exchange rate, but not a declining basis.