Pricing deadlock hits markets | weekly farm

Chicago Board of Trade wheat futures remain volatile as concerns over the Russia-Ukraine situation continue to simmer, as the overall global balance sheet threatens to see global and US stock estimates rise to new in this month’s US Department of Agriculture report. This will become clearer later this week.

So far, the market has shown no tendency to go below the January lows. We saw a rally that broke above the December high, but since then the market has fallen sharply. However, the market staged a rally last Friday night, rather than pushing lower to test the January lows.

While tensions remain in the Black Sea, it is hard to see the market giving up its risk premiums. If this view is correct, then we are at an impasse, where the fundamentals of supply and demand should probably see prices lower, while the risk for the flow of exports from the Black Sea acts in the direction opposite.

In South Africa, we see opportunities to unload old season wheat at good prices at less than $10 per ton of $400/t at the port. It’s not every day, but it’s often enough for growers who want to sell before storage costs start piling up.

Elsewhere, the market is not as attractive. For example, some traders only offer up to $358/t of Kwinana delivered in WA, with $320/t being the traded price for ASW on the Clear Grain Exchange.

We should also see good forward selling opportunities for the 2022/23 campaign. Reasonable prices may well exist, but the ones most easily seen in public forums are unattractive at around $340/t freight.

This implies a basis of -A$60/t, which is very low. Even if the basis remains low for another year, we don’t expect it to be that low come harvest time.

This leaves swaps and options as the best way to capture the current market level to support prices for the upcoming season.

While many growers use March swaps, December swaps are just as good, if not better. They are forcing a decision on exiting the swap position by the end of November. This coincides with the harvest, when price management has to be another decision. It’s either getting out of price risk by selling the grain, holding it but establishing new swaps if you think the basis will improve, or simply holding the grain and speculating that prices will rise.

Alternatively, put options could also be a tool to use this year. While supporting the downside, they will leave upside exposure if prices spike due to the Black Sea situation or if the 2022 global crop runs into trouble during the year.

The story of the market price stalemate first appeared on Farm Online.

Richard L. Militello