Market Check Managed Program adds $48 – $98 per tonne
Photo courtesy of Andrew Freeth, Gilgandra
In June 2018, Market Check finalised the Carry-Over Wheat Program after 12 months of management. Final returns varied widely between $48 per tonne in South Australia and up to $98 per tonne in Northern NSW over entry price due to the drought biting and domestic spreads widening across the East Coast.
The Carry Over Wheat Program was opened between May and June 2017 on the back of an opportunity to take advantage of the low-basis environment (local cash prices versus the global benchmark in CBOT). Market Check carried physical grain through to mid-2018 and used the wide carries being offered in the US futures market to offset domestic storage and interest costs over that time. The program also allowed pool participants to swap out of higher grades into feed grade wheat and take advantage of the spreads converging as “wheat became wheat.” Market Check’s General Manager Tom Basnett said “this opportunity was ideal for growers wanting to hold on to their grain for an extended period as a drought hedge but not wanting to carry unhedged grain while paying monthly storage and interest costs.”
The Carry-Over Program returns have been benchmarked over the past 12-months against other strategies that were available at the time, and hedging has once again proven to be the outright winner. Participants benefited from the active spreading of grades and hedging strategy in the Carry-Over Program rather than selling in the spot market during the contracting period. Depending on the time of entry, grade and location, participants were anywhere between $48 and $98 per tonne better off than if they had sold into the spot market. Looking at cash prices during the pool’s duration, and assuming that nothing was sold until the 31st May 2018 (last day of the pool) which was the high of the cash market, the strategy implemented in Carry-Over Program still outperformed.
Market Check was very pleased with the success of the Carry-Over Program and excited to announce the returns to participants in June 2018. Given the outlook and volatility this season, Market Check have stated similar opportunities are likely to present themselves. Market Check’s Head of Strategy Nick Crundall said “In most cases, these opportunities are time-sensitive so we need to act swiftly when the market is giving us signals to act. We will alert clients when we identify any opportunity and help them execute the strategy when conviction is high.”
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