There are two prices to watch in the current wheat market. One is the South Australian price. The other is the A$ value of CBOT futures. Both will tell the story of wher wheat prices are heading across the Australian grain market.

The SA wheat price is important because that state normally exports at least 75 percent of its production. The cash market has to reflect the balance between export parity and domestic pricing.

SA is also a source of grain for eastern states end-users in times of drought, with grain able to move overland via container, bulk trainloads, road transport, and by sea. There are key inland delivery points on rail that act as inland terminals for the trade to NSW.

SA also has multiple port zones, and grain accumulated in one port zone can be swapped for grain in another port zone to make sure that export commitments can be met, while also allowing grain in favourable positions to be shifted east.

Grain from WA is also shipped east, but it must be shifted from the arrival port to country regions wher it is needed. SA grain arriving by rail can go direct from wher it is produced, to wher it is being consumed. The farm to port freight is avoided at both ends.

The price of grain in SA will set the domestic market in eastern Australia. If the market is working correctly, the SA price will also reflect export parity. A trader wanting to move grain from SA to NSW should have to pay just a little more than a trader trying to accumulate grain for an export order.

To start this week wheat prices are at $345 a tonne Pt Adelaide for old season wheat, and $365/t for new season wheat. The difference in price should reflect the cost of carry to hold old season wheat to a new season position.

But that is the port based price. Prices for new crop wheat up country in SA are no longer port price less freight to port. They are higher than that because there are price premiums at key receival points that are suited to efficient rail transfer east.

The A$ value of CBOT futures is the other price to watch, because it tends to reflect the global wheat price. Too often we simply focus on CBOT US c/bu prices, but at the moment these are depressed because of the high value of the US dollar.

The A$ value of nearby futures (September) is currently A$276/t. On Thursday night it peaked at A$295.93/t (593 USc/bu). These are high prices for CBOT wheat futures. While 593 USc/bu price is a high price in the context of the past three years, it is below average for the past decade.

In A$ terms, $295.93/t is well above average, and at a level not seen since 2012, and only seen during four short time periods since late 2008.

What we should find is that a futures level above A$300/t will be hard to sustain for long, and that a price of A$320/t will be difficult to move above. December futures peaked at A$304.50/t on Thursday night last week. December futures at A$320/t should be close to 650 USc/bu.

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