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Wheat and Canola: What are they doing now?

Posted in October 2021 - in

Wheat

Since the start of August, wheat pricing for the 2021/22 season has traded around or above the 90th percentile range for 5 year pricing and hasn’t backed off. Over the last eleven years pricing has never had such sustained strength prior to harvest. Typically having such strong pricing over such a sustained period is rare, and represents an excellent sales opportunity, right? But where does this sit in the grand scheme of things? 

That’s where we look at basis – a mythical number open to interpretation, basis demonstrates how our Australian pricing stacks up against international pricing. A positive basis indicates our grain is selling at a premium to international prices. In the last five years basis has barely dipped below $0/t, and the months leading up to and during harvest have typically yielded a basis result above the 80th percentile ($48/t for Kwinana to $39/t for Esperance). In the 2021/22 season so far, we have seen basis sitting well below the historical 50th percentile mark, going as low as -$27/t for Kwinana and -$32/t for Esperance.  

What does this all mean for prices at harvest?  Recent cash prices still represent exceptional value – wheat in the $370/t to $390/t range is a great price any day of the week. But we are being hampered by international issues that have made getting Australian grains harder and more expensive than in the past. Shipping freight has become astronomically expensive, with shippers diverting capacity to more profitable routes in the EU and USA. Not to mention the global shortage of containers. The energy crisis in China is having flow-on effects into many different industries and fueling decreased production of goods and natural resources, impacting supply chains and causing significant changes to global markets.  

There are also significant local issues impacting on basis with traders very nervous about delays in getting grain to port and on a boat in time.  This has led to basis being forced down dramatically as traders want to experience a solid few months of successful harvest shipping to regain confidence in the system.  Any blowouts in loading ships will continue to hurt pricing. An additional factor is buyer credit levels. They are now paying twice as much per tonne of grain as last year. This means they will hit credit ceilings quicker and with a big crop will secure the grain they need easily to fill their boats.  This could very easily lead to a larger decrease in prices in the middle of harvest as lots of tonnes hit the market and get sold straight away.

With so many variables at play, and so much instability globally, it is impossible to truly predict what markets will do going forward. We can make educated guesses, but in real terms (flat pricing as cash), current wheat pricing represents good value.  

Canola

While not immune to the issues mentioned above, canola has been fueled by an incredibly strong demand story which started with two years of reducing soybean stocks in 2019 and 2020. This set the scene for a Canada drought, which has wiped around seven  million tonnes off their annual production. Add to this flooding in Europe, and a commodity market that represents a “safe haven” for investors and the result has been the highest ever $1,000/t canola pricing. The ups and downs of this rally have been intense. There has been plenty of times over the past 6 months where the market   appeared to have been ready to fall, only for canola to surge past its losses and set a new high limit.  

Spec and Index funds are moving towards being more bullish on grains and less on oilseeds. This current pullback may be a sign of downward momentum starting, but we will really, only know that in a week or two. For now the base prices are excellent as we do not expect too many growers to hold for long during harvest.

What our customers have to say
Ten Tigers has been my grain marketing advisor now for a period of 17 years. I have entrusted Chris Tonkin and his team to assist and direct me in the selling of my grains to suit my needs. With their experience, knowledge and regular contact and updates, I have been able to concentrate on the physical and practical side of farming without the added stress of watching the markets and possibly making wrong decisions. Allowing Ten Tigers to be my “personal broker” has put me in a position where I can relax, travel and profit from my every day farming life.
We decided to engage the services of Ten Tigers because we found we were becoming increasingly overwhelmed by the grain marketing decisions we had to make. We were sometimes making poor decisions because we had become indecisive and didn’t have clear target prices in place. We have found the staff at Ten Tigers an absolute pleasure to deal with. They are proactive in keeping lines of communication open and the paperwork they provide us with is easy to understand and very useful. The advice Ten Tigers has provided exactly what we needed. They have helped us set and reach targets and we have already seen the benefits of the grain marketing strategies they helped us put in place.
In the seventeen years we have been working with Chris and his team there has been a huge transformation in grain marketing in our business. Ten Tigers has made these steps a comfortable journey instead of the hill climb they appear to be when we receive correspondence from all different grain identities and our legal obligations we need to meet. Ten Tigers has assisted us to achieve higher daily prices regularly with good communication and sound advice. Ten Tigers has been an important member of our business allowing us to concentrate on growing our grain with the knowledge that Ten Tigers is there to worry about the marketing, optimisation and filling of contracts. The very detailed information that is supplied to us makes record keeping and entering  details into our accounting program very simple and quick.
Ten Tigers has helped our grain operation grow through a well-balanced marketing program of all our grain types in the current season and beyond. Ten Tigers has given me a greater understanding of our grain business through a fully transparent summary at the completion of each marketing season. Ten Tigers has given our business confidence to expand grain production by allocating achievable pricing target levels on all our grain types. Our business can better allocate time towards the production side knowing that Ten Tigers is managing our marketing in a professional, unemotional manner.
Ten Tigers is a business that specialises in grain marketing and consulting. We use Ten Tigers to help us achieve the best price for our grain, to find out what is happening in the world’s grain market to date and to help with marketing strategies. The best thing is, all this can be achieved by just a few text messages per day and / or a quick phone call while I stay busy growing as much grain as I can. I find them a great deal of benefit to our grain farming business.
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