US futures prices are at similar levels to 12 months ago. The Australian dollar is slightly higher, nearby futures are up about US13 cents a bushel in US dollar terms, and are up $5.76 a tonne in Australian dollar terms. In both cases the Australian dollar value of nearby Chicago Board of Trade futures are under $200/t.
Against this, current cash prices in the Australian market are high. Compared to a year ago, Newcastle based prices are up about $75/t to $80/t. Port Kembla prices are $65/t to $80/t higher, while Melbourne zone prices are $46/t higher. Even the export based port zones of Port Adelaide and Kwinana are up year on year by $37/t and $26/t respectively.
Of course, this might just mean that US futures prices are lower than they should be, and there is some evidence that this may be the case, with futures tending to be at a discount to domestic cash prices in the US. It probably also means that Australian cash prices are fairly robust at current levels, and that upside might be hard to achieve.
Whichever way we look at it, Australian cash prices are at risk. Either they will eventually pull back towards levels indicated by US futures, albeit holding some additional value from our own domestic market factors this year, or, if US futures rally, our market may not respond, letting that process pull us closer to US futures.
In the past week we have moved further away from the significant rainfall events that have plagued the harvest in Victoria and NSW. Many growers would have been expecting that this would push prices for milling quality wheats higher. In reality, Pt Kembla and Melbourne port zones prices fell in the week following the rain, and by more than the drop in US futures.
Overall, our cash market has received no support from the wet harvest, and remains vulnerable to a further drop in US futures values, and also remains vulnerable, as mentioned above, to not lifting if US futures rally from current levels.
So, why have wheat prices not responded to the rain event in the way expected? It may well be that supplies of milling quality wheats to domestic markets, and to exporters, are now higher, not lower, as a result of the rainfall event.
There is no doubt that the small crop in NSW has pushed wheat prices very high. In these circumstances, at the local level, feed users chasing wheat will buy any grade available, including milling wheat grades. In turn, those needing milling wheat for domestic use push prices higher to slow the flow of good wheat to the feed market.
When we get a significant rainfall event, the supply of feed wheat suddenly jumps. The feed market no longer needs to chase milling wheats, leaving more of the already harvested crop available for the local market, and for exports. If supply increases against demand, prices ease.
We have seen this play out in southern NSW and Victoria, with wheat prices falling since the rainfall event. Prices in northern NSW have not fallen, but equally they have not been forced higher by the rainfall event. Prices in export zones are also stable, but reports suggest that growers are not actively making sales, nor are buyers chasing tonnages very hard.