Australian wheat prices remained in decline last week, with prices for the week ending March 1 down another $12 to $20 a tonne across the board.
No port zone escaped the price declines. That brings the price decline from last September’s high to $120/t in South Australia’s Port Adelaide port zone. In NSW prices were down $77/t, while Kwinana prices were down $68/t.
The reality is that Port Adelaide prices overshot compared to other port zones, as domestic traders moved to accumulate grain in sites that can specialise in rail movements to the east coast. Port Adelaide prices pushed to a premium over Kwinana, against a normal discount of $25/t between the FIS price in the west and the Port Adelaide price.
There is still a price premium for wheat and barley stored at major railheads north of Adelaide, but it still leaves the implied price fall in country SA at $105/t since September 2018.
Presumably there are not many growers holding wheat after the high prices on offer at harvest. The theory often is that high basis levels (i.e. drought premiums) insulate the Australian market from offshore influences and keep our prices high in post drought years. That has been the case in NSW in recent east coast droughts, but it was never the case under the regulated export market and appears not to be the case this year with shipments required from WA.
Australian basis levels are still high. Basis at Kwinana this week was $80/t, and at Port Adelaide it was still at $68/t. These are not basis levels normally seen in export zones in Australia.
At the same time, prices across Australia have realigned into something that appears to be near normal. Port Adelaide is now $18/t under Kwinana (it is often around $25/t). Port Adelaide prices are $94/t under Newcastle port zone prices, and SA railhead prices are $80/t under Newcastle.
Melbourne prices are $33/t under NSW port prices. This should see a steady drift of available grain northwards. Port Adelaide prices are $60/t under Melbourne prices, and that should also see as much grain as possible move east from SA.
The Australian market has sorted itself out reasonably well. Given prices at the export zones are still very strong against CBOT futures, it's no wonder the market has basically followed the US market down.
In recent weeks CBOT futures have sold off against falling Russian prices, which has pushed EU prices lower as the three major exporters vie for business into the Middle East and North Africa. Australian wheat prices are likely to follow the lead of CBOT futures for the time being.