Mecardo Analysis - Seasonality Update - Wheat
- By: "Farm Tender" News
- Cattle News
- Nov 29, 2018
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By Andrew Whitelaw | Source: CME, ASX, Mecardo.
Harvest is in full swing throughout much of Australia and the majority of grain sales by producers will occur over the next 12 weeks. It is worthwhile examining the seasonality of wheat markets globally and locally, to give an indication of where the market is currently pricing.
Seasonality can provide an indication of the performance of a commodity, in a similar way to deciles. We regularly use them to show how the market is travelling at present compared to previous points in time and view patterns that might emerge.
In these seasonality charts, rather than use a min/max for the seasonality banding (green shaded area), we use a 70% range (or 1 standard deviation). The 70% banding is used to remove the extremes in the marketplace, which we believe gives a better indication of the seasonality, as opposed to a min/max which can be extremely volatile. In these charts, we also overlay the average for the timeframe and the recent seasons.
When examining wheat pricing, the first place to start is the international market. In Figure 1, the seasonal trend for CBOT wheat is displayed. The market continues to trade below the decade average and has done so for the past year. The past four years have experienced a very distinct rally in the middle of the year, which the market was not able to sustain. During this quarter, the market has very closely followed the same trend as 2015.
At a local level, I have chosen to examine Geelong and Kwinana, as this gives a good representation of the east and west coast. Where Chicago futures have languished, local markets have rallied strongly during the second half of the year. This is due to the drought causing basis levels to rise to very strong levels.
In both Figures 2 & 3, it is clear that Australian pricing levels are well above the average and out with what would be considered a normal range. The peak was reached in the middle of October and we have seen some retracement, albeit remaining at very strong levels.
Key points
* CBOT futures have fallen after the mid-year rally, which has occurred in each of the past four years.
* CBOT futures remain well below the seasonal average for this time of the year.
* Locally, prices have remained strong as a result of drought increasing basis levels.
What does this mean?
As harvest continues we may see further downside in wheat due to harvest pressure. It is unlikely that we are going to see a return to the October peak unless there is a major rally in the overseas market.
Any fall on the east coast is, however, likely to be limited by virtue of the domestic demand.
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