Cloudy grain price direction

We have the delivery period against the December contract, option expiry, and the US Thanksgiving Holiday all wrapped up together.  

Add to that the start of the Australian harvest, and price direction in general can become a little clouded.

This year there are deliveries expected against the expiring December contract.  

This has put pressure on December futures prices.  

At the same time liquidity is low because the funds have all rolled out to March positions by now.  

So, we have seen the December contract lose ground against the March contract in the last week or so. 

At the same time, though, March futures have also lost a little ground, while the currency has also rallied after losing close to US4 cents since the presidential election.

At this time of year, we often see the correlation between US futures and Australian wheat prices break down.  

We don’t follow futures down in full, or follow them back up, and some days we move in the opposite direction to the overnight move in futures and currency.    

That adds another layer of uncertainty into wheat pricing as growers begin making sales as deliveries build up.

So far not a lot of wheat has been delivered across southern Australia, and even in northern cropping areas of NSW harvest is later than it has been in recent years.  

How much of the deliveries to date have been sold is hard to gauge, but prices have not been that attractive, with little difference in price levels from Newcastle around to Port Adelaide.

The wheat that has held up better, and gained in value, is the high protein wheat.  

Since the beginning of November Australian Prime Hard (APH2) prices in the Newcastle have lifted by $20 a tonne against a fall of $4/t for Australian Premium White (APW).  The 13 per cent protein Hard (H1) wheat prices in southern regions have also lifted modestly against price falls for APW.

The higher prices for high protein wheats is following the trend being set in US futures prices.  

However, we also tend to see the premiums for higher protein wheats lift in the Australian market as harvest gets underway.  

As deliveries of higher protein wheats begin, demand builds to get that wheat while it is available.

Supply of higher protein wheat will ultimately determine how large the premium over APW gets, and how long it stays there.  

Generally, if supply is adequate, prices for higher protein wheats become pegged, and eventually the gap back to APW begins to close.

This year with exceptional yields being reported from the early harvest, there is uncertainty about just how much high protein wheat will be delivered.    

Protein levels are likely to be lower than normal, but volumes might still be adequate.  

What we might be missing is enough very high protein wheat to be able to blend with low protein wheats to meet minimum export protein levels on larger tonnages.

There may be enough unblended high protein wheat available to meet export requirements, but the loss of blending margins may hit exporter margins this year, and may see downward pressure on prices for lower protein APW and Australian Standard White (ASW) wheats.

As harvest unfolds further, we can expect APW prices to trade in a relatively narrow band regardless of wheat US futures head.  

Higher protein wheat may show some further upside.