A basis for complaint?
- Australian wheat pricing generally trades at a premium to Chicago futures.
- This year basis (ASX-CBOT) has averaged -A$18
- In recent years basis has been driven to very high levels due to local conditions.
- New crop is trading at negative basis.
- This year with the prospect of an above-average crop, and large end stocks, could result in a longer period of negative basis.
In Australia, our wheat prices typically would trade at a premium to overseas futures (specifically Chicago). This season has been quite different due to the large crop we have produced, leading to Australian wheat pricing trading at a discount.
To put this into perspective, this chart shows the annual basis between ASX wheat futures and Chicago (spot contract).
To learn more about basis click here
Whilst ASX wheat doesn’t necessarily show a perfect fit for all port zones, as it is an east coast contract it is a good indicator of the general Australian price.
Overall basis between ASX and Chicago has typically been positive, with only short periods of time when the contract has fallen into negative territory.
Even so, during any given year, basis has maintained a reasonably large range between the minimum and maximum for a given year. So far, in 2021, the range between the lowest and highest basis level has been very tight.
So how is basis performing?
Old crop basis is in the negative territory and has been trending lower since harvest. Again this is logical, a big crop adds pressure to the market, and logistical challenges have resulted in lower appetite from some buyers.
Ahead on the horizon, basis levels are also showing a negative picture. If locking in forward contracts physically, this would result in a negative basis. This means that it may be better to lock in futures and leave basis open, to participate in any reversion to the norm.
This year, however, production is looking reasonably assured for large tracts of the country, especially in the west. A large carryover from last season and potentially a well above average crop in 2021 could mean a longer period of low basis.