Lengthy-time readers will know we like to separate wheat values into two separate elements when costs. The CME Mushy Pink Wheat (SRW) is the bottom of wheat costs, as most of our wheat is offered into worldwide markets, which compete with SRW.
The ‘foundation’ is the opposite part, and it’s merely the native premium or low cost to SRW. Some like to separate foreign money out as nicely, because the change fee impacts the worth of SRW in our phrases, however for the aim of the evaluation, we’ll assume the AUD/USD has minimal seasonality.
Determine 1 reveals the typical worth of wheat every month for the 19 years from 2006 to 2024. Wheat costs are highest within the first quarter, as that’s peak uncertainty for northern hemisphere winter wheat crops. The chance premium is inbuilt.
Because the season progresses, the chance premium declines, and harvest strain sees costs backside out in July. After the US winter wheat harvest, SRW costs improve into October earlier than weakening into the top of the 12 months.
The seasonality seems massive till you have a look at the Y scale. There’s solely $15/t between the excessive in March and the low in July. Determine 2 reveals the month-on-month proportion change, which once more is small and doesn’t provide loads of readability when it comes to advertising and marketing methods.
If we’re searching for upside presently of 12 months, we noticed a powerful rally in SRW in October final 12 months, a few of which was held shifting into harvest. We noticed the same pattern in 2020 when costs gained $50 by way of our spring. Importantly for wheat growers, it’s uncommon to have costs fall presently of 12 months, when costs are already thought of to be fairly weak.
By way of foundation, the overall pattern is for it to weaken as we strategy harvest. When the crop is failing, it may well have excessive rallies, however manufacturing forecasts, this doesn’t seem like the case this 12 months.
