GRAIN BULLETIN: Local cash markets rally on the geopolitical risks

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Grain marketing hasn't got any easier and having to deal with large swings in price are not unusual.

Decisions made regarding how and when you make sales can have a significant impact on growers' bottom line.

The present wheat market highlights this as we continue to see volatile price moves on United States wheat futures and local cash markets.

US wheat futures continued its extreme volatility as it works to find fair value in this extraordinary environment.

Looking at the December 2022 contract, in the past week it has traded in a huge range.

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Prices were previously tracking higher in a broad upward trend, however last week we have seen a break of this trend, with prices are captured by a broad range bound pattern.

While there are many balls in the air pulling at wheat prices, the war in Ukraine gets top priority in determining price direction.

Amid some progress with the peace talks and Russia moving its troops to the Eastern Donbas region, some of the heat has come out of the market.

As the saying goes, bull markets need to be fed and without a constant stream of fresh bullish news prices lost momentum and are rangebound.

With India stepping up to help fill the supply hole caused by a lack of wheat exports coming out of the Black Sea, coupled with some better rain across the US Plains the usual seasonal pressure could come into play.

Despite recent rain, the market is still anxious about the US crop as the latest crop condition report indicates the second lowest rating on record for early April.

Following this report we saw prices retrace some of its recent weakness and is now trading at the high end of its range.

There is also production uncertainty in other major exporting nations; history tells us that 'La Nina' is generally not good for Northern Hemisphere production.

The market going forward will be torn between further Russian/Ukraine war escalations, continued dry conditions across large swathes of the US Central and Southern plains, and the normal seasonal weakness we see into late June which coincides with Northern Hemisphere harvest pressure.

Local cash markets have rallied on the geopolitical risks; however, we did not rally to the heady heights of US futures and as a result we have seen basis on both old and new crop fall to historical low levels. Local old crop cash prices look relatively cheap on the world stage.

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To help alleviate the very tight global stocks situation, Australian exporters have booked out most available shipping slots where there is confidence of available grower liquidity.

New Crop Adelaide 2022-23 cash prices at $401 have an implied basis of minus -190c/bu, or circa $A92/T.

Growers looking to lock in prices for 2022/23 season can use a high decile forward price and close their eyes to basis or as an alternative use a product (such as swaps or options) where basis is left floating.

The swap aim is to roll out of the product into a physical sale on basis appreciation.

My motto before using swaps is that three planets need to align; strong decile starting price, level of comfort over production and a view that basis is currently weak and will firm.

One must remember that anyone using wheat swaps is pricing grain in Chicago US, and as a result any ongoing drought across the US Plains will most likely see US futures stay elevated and basis stay relatively weak.