Market Morsel: Wheat to rely on overseas intervention

Market Morsel

The wheat market has collapsed recently, falling to levels not seen in years. This is bad news as we are approaching the harvest.

Australian prices are following the rest of the world down. For the most part, wheat is wheat, which is why there is a close relationship between prices worldwide.

The exception is when local issues arise. This causes our basis to either increase or decrease, dependent upon local conditions.

The first chart below, we can see the comparison of ASX wheat (east coast centric) and CBOT wheat. The price locally has followed the market down.

If we look at the second chart, the basis is shown. The basis level had fallen from its heights at the end of last year when poorer conditions were expected.

The overall crop forecasts are currently reasonably strong, pointing to an above-average national crop.

The crop is still some way from maturity and harvest, but provided the crop follows the current trajectory, this will stop our local premium from rising dramatically (on a national basis).

If the crop stays where it is, or improves, then our reliance on overseas values will increase to see farmers in Australia rewarded.