There are two prices to watch in the current wheat market. One is the South Australian price. The other is the A$ value of CBOT futures. Both will tell the story of where wheat prices are heading across the Australian grain market.
The South Australian wheat price is important because that state normally exports at least 75 percent of its production. The cash market has to reflect the balance between export parity and domestic pricing. South Australia is also a source of grain for eastern states endusers in times of drought, with grain able to move overland via container, bulk trainloads, road transport, and by sea. There are key inland delivery points on rail that act as inland terminals for the trade to NSW.
Grain from Western Australia is also shipped east, but it must be shifted from the arrival port to country regions where it is needed. South Australian grain arriving by rail can go direct from where it is produced, to where it is being consumed. The farm to port freight is avoided at both ends.
The price of grain in South Australia will set the domestic market in eastern Australia. If the market is working correctly, the South Australian price will also reflect export parity. A trader wanting to move grain from South Australia to NSW should have to pay just a little more than a trader trying to accumulate grain for an export order.
To start this week wheat prices are at $345 per tonne Pt Adelaide for old season wheat, and $365 per tonne for new season wheat. The difference in price should be reflecting the cost of carry to hold old season wheat to a new season position. But that is the port based price. Prices for new crop wheat up country in South Australia are no longer port price less freight to port. They are higher than that because there are price premiums at key points that are suited to efficient rail transfer east.
The A$ value of nearby futures (September) is currently A$276 per tonne. On Thursday night it peaked at A$295.93 per tonne (593 USc/bu). These are high prices for CBOT wheat futures. While 593 USc/bu price is a high price in the context of the last three years, it is below average for the last decade. In A$ terms, $295.93 per tonne is well above average, and at a level not seen since 2012, and only seen during 4 four short time periods since late 2008. What we should find is that a futures level above A$300 per tonne will be hard to sustain for long, and that a price of A$320 per tonne will be difficult to move above. December futures peaked at A$304.50 per tonne on Thursday night. December futures at A$320 per tonne should be close to 650 USc/bu.
