Market Morsel: Wheat at a premium in Australia
Market Morsel
The term basis is regularly used in the grain industry. What does it mean?
One of the most common questions which I am asked is ‘what is basis?’. It is a jargon word which confuses many. In reality, the term basis is quite simple
The price offered by your local grain buyer is quoted as a flat price, this is the price for the physical delivery of grain, with all the components of pricing included. An example would be A$310/mt delivered Melbourne, and this price includes futures, fx and basis.
The term basis is exchangeable with difference. When someone is talking about basis, they are discussing the difference between two different prices, generally between physical and futures.
In general, in Australia, basis is a comparison of against CBOT soft red winter wheat (in A$/MT). Whether CBOT is the relevant indicator is a discussion for another day.
The basis level can be either positive (premium) or negative (discount) to CBOT futures. Australian basis levels tend to be positive, with very minimal time at neutral or negative levels.
At the moment, the basis levels for Australian wheat are positive, with premiums across all port zones for our wheat. The conditions in Victoria and South Australia have not resulted in a strong drought premium this year because NSW has been looking extremely well, and recent rains will continue that trend.
