There were some interesting price moves in the week ending March 8. Despite further losses in Chicago Board of Trade futures (down $7.24 a tonne), Australian prices were unchanged (Newcastle and Kwinana) or up (Pt Kembla, Melbourne and Port Adelaide).
It seems like the Australian market is finally exerting some muscle to keep the trade interested in shifting grain from Western Australia and South Australia to NSW and Queensland.
The lift in basis last week should work to keep enough tension in the Australian market to get grain moving from west to east.
What we don’t know is just how supply and demand are balanced for the rest of the year.
Any slip up with too much exported could see the east-coast market really fire up.
But, if supplies stay plentiful in WA and SA, price gains will remain capped.
The global market focus is shifting to new season projections. At this stage it is just a guessing game with assumptions largely that production revert back to average in key production regions, including Australia.
The FAO has released its first forecast for 2019/20, and have pegged the global crop at 757.4 million tonnes. That would represent a 3.4 per cent lift on last year and propel production back towards the record set in 2017/18.
Most of the gains in the global crop will be driven by the EU, where acreages are up 3pc, and a mild winter has seen low levels of frost damage. Russia is also expecting a big lift in output.
The Australian crop has been pegged at 24 million tonnes.
A respected NSW based grain marketing and advisory service tweeted the Australian crop was forecast to come in somewhere between 10 and 30 million tonnes, and to be honest, that’s about as good a forecast as you can get in early March.
It's worth looking at the consequences of the global crop recovering to the extent the FAO suggest.
The problem with a rebound in global production is that will only generate a small drop in global stocks outside of China, even with a modest lift in global consumption.
Add to that increased exportable supplies from the EU and ongoing exportable supplies from Russia, and it will remain hard for the US to do much with their stock levels.
If the FAO are near to being on the money, it will result in a very benign wheat market, with a reasonable chance that end of year CBOT futures values will be weak.
The problem in the medium term is the market will focus on this “endgame” for 2019/20, unless we see some perceived threats to the northern hemisphere crop. We will need that to give us a mid year rally from the March low.