In early October last year, wheat prices in the Newcastle zone were $55 a tonne higher than they are this year, and Port Adelaide prices were $105/t higher. Kwinana prices were only $30/t higher. US futures ($A values) are close to unchanged over the same period.
Last year the market was in panic mode, with NSW prices surging higher, dragging SA prices higher as well. The market peaked with SA prices hitting $435/t, and Newcastle prices reported at $485/t.
Last year's prices were too high, and they quickly corrected back by as much as $65/t by mid to late November, before recovering some ground into the end of December. Once we hit the new year, prices fell sharply again.
This year's market is much more disciplined so far. SA prices are remaining at least $80/t under Newcastle prices, rather than closing up to less than $50/t under, and WA prices have basis levels that are at least $30/t lower this year.
WA and SA markets are closer to export based prices than they were at this time last year, and SA prices are at levels to make sure that grain goes by rail into NSW.
However, the uncertainly about this year's Australian crop continues. More yield potential was stripped from SA crops over last weekend, and we are still seeing the national crop go backwards.
This is being mentioned in international grain news, along with dryness concerns in Argentina, but the view is that there is just too much wheat elsewhere for Argentina and Australia to make much difference to global wheat prices longer term.
Despite that, we might be on track to produce an even smaller national crop than last year, but the impact on the domestic market is going to be different.
That is because the largest drop in output is in WA, while the real impact on wheat prices domestically is driven by the balance sheet across SA, Vic and NSW.
Last year there was real tightness in supplies in SA. The NSW market had to price itself to attract WA grain, while SA prices had to be set to limit just how much grain moved east.
At this stage demand for WA grain into NSW should be lower. However, this is where the tension will remain in the market. Pivotal to all of this will be the final size of the Vic and SA crops, and their ability to fill the demand gap in NSW.
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