Market Morsel: Look at the horizon for wheat price

Grain | 10th May 2024 | By Andrew Whitelaw

Market Morsel

The wheat market has been on fire recently and offers some pretty attractive opportunities for growers to hedge grain.

At EP3, we keep a close eye on the forward curve. The forward curve is a chart we often refer to in EP3 articles as it provides a quick market view. The forward curve details the price for each contract expiry date for a commodity’s futures contract.

The curve gives an instant snapshot of where you could theoretically buy or sell the commodity.

The forward curve can be in either contango or backwardation. In typical financial/economic gobbledygook fashion, the terms sound more complicated than reality. Although there are a range of economic theories behind contango and backwardation, I’ll try to explain them succinctly below.


A forward curve is in contango when the forward futures months are at a premium to the spot level. In the above chart, the market is in contango, as each of the months ahead is higher than the September contract.

The futures market in contango is effectively paying a premium for the seller to carry the crop.


As you might expect, backwardation is the opposite of contango. The forward curve is in backwardation when the forward market is trading at a discount to the spot market.

When in backwardation, the market is effectively wanting access to grain as soon as possible and does not want to pay you to carry the grain.

How to use it as a farmer?

The wheat futures tend to be in contango and effectively provided a premium versus spot. This offers the opportunity to lock in futures on the forward curve i.e beyond the current harvest at a premium to spot.

It is important to note that the price can (and will) change between taking out a contract and when it expires. However, if you are locking in a price you are happy with, that becomes less of an issue.

At the moment, the December 2025 contract is currently at A$405. Historically this is a very strong value.

We don’t know what will happen between now and then, but this value gives a starting point of A$405 with basis to be added.

This basis could be either negative or positive, depending on how the Australian crop performs.