Grain farmers who have a strategy of forward and forward sales this fall, when prices are usually at their best, are probably a little out of the money with wheat and now way out of money with canola. If confidence isn’t enough to sell more for 21-22, maybe it is time to check out the offer for 22-23.
When delivery problems cause grain and oilseed prices to rise extremely high, the market will often fall into what is known as backwardation. Backwardation occurs when future prices are lower than current prices, and this is not normal in futures markets.
Usually, future grain values are set at current prices plus transport costs. At the moment, the market expects that high prices will be the cure for high prices, which will lead to a ramp-up of production and thus a price drop for the next harvest.
Breeders always struggle to get prices that are reduced to the spot and sometimes a little more perspective is required.
The wheat forward curve is in backwardation, but it’s not a huge discount until the next harvest. Figure 1 shows the Chicago SRW curve in Australian dollars. The December 21st SRW is in the mid 370s and is only $ 5 to 10 less for the December 22-23 harvest.
If we put the December 21st SRW price of 720 ¢ / bu in US terms into a percentile table, it’s 84% over the past 10 years. Prices could go up, but history tells us that they are more likely to go down.
In the case of rapeseed, the forward curves have a larger discount, but the prices are historically better. Figure 2 shows that the forwards for the coming crop are well over $ 900 / t for ICE and Matif futures. When new harvests become available for the northern hemisphere in July and September, prices will fall but are still at USD 775 / t on Matif and USD 710 / t on ICE.
Despite a discount of nearly $ 200 per ton from old crop to new crop, rapeseed prices are still above the 97th percentile for 2022-23, with prices only being higher in this last extreme period.