IT’S been a volatile two weeks in world grain futures markets.
Led by corn and soybeans weather issues in South America, wheat futures rallied more than $25/t in five days and then fell back about $20/t of this in just two days.
In that time, while futures were up $28/t at the peak, the bid to the Australian grower unfortunately only moved $5-$15 higher depending on location and grade.
This was a textbook example of basis weakness during a non-fundamental futures market rally.
I saw one supposed market pundit comment that this was a great opportunity to sell cash grain.
In actual fact, this wasn’t a great opportunity to sell cash grain, instead it was a good opportunity to sell futures and hold onto basis exposure, as basis had just weakened by up to $20/t.
What did eventuate from this move was that a number of growers did sell some cash grain at $5-$15 better than they previously could have.
At the same time basis trading consumers bought some grain basis at $10-$20/t cheaper than they previously could. A win-win you could say. The big question now is where to from here?
I suspect the answer might be nowhere fast unless something changes fundamentally in the wheat market globally.
The grower has just had a taste of some slightly better prices and hence will feel in some way rewarded for ‘holding out for the rally’.
On the flip side the buyers have just had a taste of some cheaper basis and will feel equally rewarded for ‘holding out for the weakness’.
So human nature would suggest that both sides of the trade will now likely be even prouder of their numbers, with bids pulled lower and offers taken higher.
I expect that unless we have a fundamental shift we will go back to having a Mexican standoff on our hands with wide bid/offer spreads, and likely even wider than they were before this recent volatility!
Growers will be in two minds at present; on one hand hoping for the dryness to continue as this could bring with it some selling opportunities for both old and new crop, but also hoping for an inch of rain to give confidence in planting.
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