Grain Market Update - Wheat (September 2022)
The following graph shows the movement in Chicago (CBOT) December 2022 Wheat Futures price expressed in A$/tonne and the 2022/23 APW Multigrade price delivered Port Kembla. Also included is the 10 year average CBOT December Futures basis for the APW Multigrade price at Port Kembla, plus the corresponding basis for the current year.
Currently the CBOT December 2022 Wheat Futures price is A$446/tonne equivalent and the APW Multigrade price is $387/tonne delivered Port Kembla, resulting in a negative basis of A$59/tonne. Interestingly, the weekly change in the basis is almost a mirror image of the CBOT Futures price. This indicates that fluctuations in the international price are having very limited impact on the domestic market, due to the logistical challenges exporting grain.
The negative basis of A$59/tonne compares with a negative basis of approximately A$25/tonne at this time in 2021. The average basis at this time of year is approximately positive A$53/tonne. Despite the negative basis, the current domestic price is $77/tonne higher than the long term average.
The main driver of the current market is the climatic and political situation in the northern hemisphere. The northern hemisphere cereal harvest is nearing completion, while the Midwest.
US corn and soybean harvest is about to get underway. This has injected new supply into the market, significantly reducing uncertainty regarding production risk. Despite the large variations in climatic conditions, the overall harvest is predicted to be approximately of average size. The Russian/Ukrainian war has also impacted the grain market. Ukraine has once again begun exporting significant, albeit smaller than average quantities of grain. Also increasing energy prices has fuelled speculation of a global recession, which is weighing on grain markets.
The current APW Multigrade price at Port Kembla is approximately a Decile 8 price, calculated on prices from 2011 to date.
Assuming freight to port of $40/tonne, the present Multigrade price represents $347/tonne local depot, which hopefully is in excess of clients’ Break Even Price at budgeted yields.
