Grain Snippet: Softer Basis Weighs on Wheat Market
SA and Vic new crop wheat prices have slipped $10/MT over the past month on a track basis, with a softer basis against SRW weighing on the market. This pressure primarily stemmed from improved spring rainfall forecasts for southern and south-east Australia, along with recent localised showers in May. These weather events cooled local market sentiment, with eyes trained on any revisions to the Australian spring outlook.
The June ABARES report released the first forecast for Aussie wheat production in the 25/26 season at 30.5MMT, down 3.55MMT (14%) y/y. Most of the decline came from reduced production estimates from NSW following their bumper 24/25 season. In WA, the early seeding period was marred by dry conditions in the north with an expectation that growers would be reducing overall wheat area; soil moisture deficits have since expanded to the south and have reduced early yield forecasts. Meanwhile, conditions in SA and Vic are experiencing some of the dryest conditions on record. ABARES presently has SA’s 25/26 wheat production pegged 29% higher y/y (at 4.1MMT) following the low-yielding 24/25 season (with production at 2.8MMT and 41% below the 5-yr average). Growers are cautiously optimistic about the spring weather outlook, with present forecasts indicating above-average rainfall through Jul/Sep, however at this stage the models presently suggest large portions of southern Australia will only see average rainfall.
US Dec SRW futures have struggled to gain ground since Feb, forming a new contract low in the FH of May. This was mainly driven by timely rains that swept through the US wheat belt, benefiting crops. Nonetheless, funds began profit-taking through short covering. Furthermore, news of a state of emergency in Russia’s key wheat-growing region (due to frost), Rostov, along with extreme heat exceeding 40°C in a major Chinese wheat region, helped spark a short-term rebound in US SRW to around 590 USC/bu. However, upward momentum has since faded, with forecast rainfall across key EU growing regions continuing to cap prices on the global stage.
Dec HRS wheat has posted stronger gains than other US wheat futures in recent months. Since March, the spread to SRW has widened from 28.5 to 72 USc/bu, a level not seen since April 2024. The rally was driven by poor crop ratings, with US spring wheat initially rated at just 45% GD/EX (the lowest since 2021, and against the market expectation of near 71%) combined with dry weather forecasts across key spring wheat regions in the US and Canada. The latest crop condition report showed a recovery to 50% GD/EX, though still well below the five-year average of 65%.
Russia has been the No.1 wheat exporter over recent seasons, but that’s set to ease in 24/25, with exports forecast to fall by around 12MMT (21.6%) y/y due to dry conditions and lower production. The 25/26 new crop started poorly, but above-average rainfall from Mar–May alleviated some of the pressure. According to the May USDA report, Russia’s 25/26 wheat production was estimated at 83MMT, up 1.3MMT y/y but still below the five-year average of 85MMT. With this modest recovery, 25/26 Russian wheat exports were forecast to rise by 1.5MMT (3.4%) y/y.
Meanwhile, the EU stepped up. The EU Commission forecast 25/26 wheat production to rebound by 15.7MMT y/y, reaching 134.6MMT, despite rainfall deficits through Apr–May in key areas like France, Germany, and Poland. The May report noted crops were generally holding up well, and with rain forecast in early June, growers were heading into harvest with cautious optimism.
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