In Australia, the wheat price is made up of three distinct components:
1. Futures price
Chicago Board of Trade (CBOT) futures are an important indicator for Australian wheat prices. CBOT futures can provide opportunities for growers and other industry participants to manage their market exposure.
Grain Futures markets are affected by factors including supply and demand, weather, government actions, speculative activity and other related grain market activity.
Assuming all other components remain constant, a higher futures price is likely to result in higher grain price.
2. Foreign Exchange
Australian wheat is most often priced on the international market in US dollars (USD), so the value of the Australian dollar (AUD) against the USD is very important for Australian growers.
Important factors that affect the exchange rate include:
Assuming all other components remain constant, when the AUD loses value against the USD, the amount you receive for your grain in AUD is likely to increase.
3. Basis
The basis is the difference between the physical wheat market price and the wheat futures market price at a particular location at any given time.
Wheat cash prices are created relative to the prevailing futures price. Assuming all other components remain constant, a higher basis (smaller negative or higher positive number) is likely to result in a higher grain price.
The basis is a combination of many factors such as freight, storage and handling costs, local supply and demand, crop quality, weather and government actions.
Other factors including grain quality premiums and discounts, storage and handling charges and freight costs also effect your wheat price.
The below diagram illustrates that the futures price and the basis is generally expressed in US cents per bushel. (When you want to express the wheat price in USD per tonne, you multiply the futures price and the basis price by the conversion factor of 0.3674371). To derive an AUD price per tonne amount, divide the USD per tonne amount by the AUD/USD exchange rate.
General advice warning & disclaimer
This correspondence may contain general advice about financial products issued by AWB RiskAssist Limited ABN 38 086 627 465 (AFSL No. 244128). Such advice has been prepared without taking account of your objectives, financial situation or needs. You should, before acting on the advice, consider the appropriateness of the advice having regard to your objectives, financial situation and needs. You should also obtain and consider the Product Disclosure Statement (PDS) for the relevant product before making any decision about whether to acquire or continue to hold the product.
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