Farm Tender

Mecardo Analysis - The start of the marketing season

By Andrew Whitelaw | Source: CME, Mecardo.

The harvest is all but complete in Australia and thoughts turn to the 2019 season. Will it rain, what will we plant? In this update we take a look at the forward curve, and why it is important to keep an eye on it.

The wheat market has been in a steady decline since 2012 (figure 1). This has occurred due to the consecutive strong global crops resulting in high stock levels. The past year has seen prices start to recover albeit nowhere near the highs of the decade.

In figure 2, the forward curve is displayed. The wheat futures market is in contango. The market is in contango when the forward futures price of a commodity is above the spot price. A contango market usually occurs when buyers are more willing to pay more for a commodity in the future than the present. This generally occurs in storable commodity markets, when there is an excess of supply. This typically encourages sellers to hold a commodity rather than sell for a spot price, as a ‘premium’ is paid further out from the spot contract.


2019-01-17 Grain 1 2019-01-17 Grain 2


The most important months to examine for next season are July, September and December. At present these months are trading at A$266, A$270 & A$277. These levels are higher than the spot market, however are at relatively low levels.

In recent months the forward curve has provided better opportunities for hedging, however they do provide a starting point for assessing the coming year. It is important that basis has to be added into this calculation to determine the full price received by a producer, therefore it is important to read “3 elements you must consider when pricing grain”.

Key points
   * The wheat market has recovered from 2016 lows.
   * The market structure is in contango, i.e. offering premiums further out.

What does this mean?
The CBOT contract doesn’t currently offer the best hedging opportunity for growers, as we are currently at relatively low levels. There is still a long way to go between now and harvest, and any substantive production issue is liable to lead to a rise in pricing providing more attractive hedging levels.

In my next piece we will look at whether ASX futures are a better avenue for hedging.