Wheat price fall jitters
WA farmers are reeling from a softening in wheat prices with APW grade wheat now trading at $265 to $266/tonne, about $50 down from its peak of $320 in March this year.
Current prices mark the lowest returns a tonne since the 2011-2012 harvest, and with the US Department of Agriculture forecasting world wheat production to be the world's second highest on record at 705.2 million tonnes, there seems little hope of a rebound in prices.
NAB agribusiness general manager Khan Horne said concerns that unrest in Ukraine could hamper wheat production had not yet materialised. Sanctions against Russia also look unlikely.
Agvise Management Consultants director Shane Sander said the industry was expecting a low probability of such sanctions given the EU was taking a cautious approach because of its dependency on Russian oil and energy.
"At this stage the probability looks quite low and so the wheat price is not reacting as a result," he said.
The biggest threat to supply could be the prospect of El Nino in the Eastern States, though this appears to not be as severe as first expected.
Mr Sander said current pricing meant farmers were in "nowhere land" with decile five pricing numbers offering no strong direction on how to market their wheat.
He said for many of the top operators on average yields, there was still scope to make good profits this year.
Furthermore, the stronger wheat price earlier in the season had also offered some of the best opportunities in many years to sell forward.
"However, even growers who had taken advantage of the stronger prices would have hedged a maximum of 40 per cent of their crop, so in this case 60 per cent would still be subject to the lower prices," Mr Sander said.
CBH wheat trading manager James Foulsham does not expect a sustained rally in the wheat price in the lead-up to harvest and recommends farmers consider continuing to sell some of their crop at current prices.
"As we approach harvest, there is always the potential some random event may disrupt supply and cause the wheat price to rally," he said.
"Certainly this would be the case if Western governments put sanctions on the export of grain from Russia. However, we believe that is unlikely and growers should not base their selling strategy on such expectations.
"So far indications are that it will be a good season in Australia, so the wheat price could continue to fall.
"If farmers can still lock in prices of around $270 to $280, it makes sense to sell some at these levels rather than hold out for a rally, especially if they locked in some early season sales at higher prices."
Nick Crichton, who runs Anglesey Farms at Gnowangerup and Katanning with wife Amber and father-in-law Geoff Shepherdson, is watching the wheat price closely and hoping for a rebound before harvest.
He said if the wheat price did not increase by harvest, he would likely withhold selling some of his crop until there was an improvement.
Taking the sting out of the current price is the fact he has already forward sold about 20 per cent of his expected harvest at an average price of $315/t.
Furthermore, the season is looking promising after 150mm of rain thus far on the mixed farm property where he has this year planted 1100ha of wheat and a further 1100ha of other crops including barley, canola, oats and lupins.
"We don't want to be overly optimistic about yields as the spring rainfall will be very important, but so far things are looking good," Mr Crichton said.
"We just need the wheat price to improve. However, currently we can see nothing on the horizon that is likely to significantly affect global supply and demand, and hence influence wheat prices."
NAB Agribusiness expects a falling Australian dollar could mitigate further steeper falls in the wheat price.