Price volatility extreme as wheat market tries to price current fundamentals

In Australian dollar terms, that equates to approximately A$140 a tonne trading range for the week.

Price volatility in CBOT is extreme as the market grapples with trying to price current fundamentals.

Those price moves can also be exacerbated by fund money as investors look for profits in an inflationary environment.

At the start of last week, news of the Indian wheat export ban fueled a further rally in CBOT after a bullish United States Department of Agriculture World Agricultural Supply and Demand Estimates report just two sessions earlier.

Profit-taking is credited as the primary reason for the correction at the end of the week, along with some forecast rain through parts of the US.

The Australian dollar high for CBOT July 22 and December 22 futures was just over A$670/t last week!

This compares to Australian Premium White 1 wheat trading $561/t on Clear Grain Exchange (CGX) in Port Adelaide last week.

The variation in prices achieved across Australian port zones remains high, with Australian Premium White 1 trading $500/t Western Australian port zones, $526/t Portland, $508/t Melbourne, $504/t Kembla and $491/t Newcastle.

When converted to equivalent physical prices of wheat offered by other world exporters, these cash values still make Australian grain the most competitive.

The only other origin that was compared to Australia on a price basis was India, and that's gone now.

Hence whilst CBOT corrected lower at the end of the week, prices being offered by Aussie sellers generally held on CGX.

What could pull prices lower from here in the next few months?

There is still time for crop conditions to improve in the northern hemisphere.

Parts of the winter wheat crop are into heading, so rain now can have an impact, however, it's very close to crunch time.

The disruption to grain supply from the Ukraine/Russia conflict has been priced into markets, so if some supplies from the area get moving again, it could be a weight on prices.

High prices could start to ration some elastic demand.

USDA reduced global consumption marginally, but wheat as a staple food is hard to ration, particularly when feed supplies are also tight.

Australian export constraints and the high cost of grain stretching buyer credit can sometimes limit buyer appetite.

However, the total amount of grain to be exported or used domestically this year is unlikely to have been bought.

That means buyers require grain, and a significant determinant of Australian prices could be the price growers offer it for sale.

For more information or to see what values are trading, contact Clear Grain Exchange on 1800 000 410 or support@cgx.com.au