Risk management in Australian wheat export: A descriptive analysis of market outlook and options for price risk management

Richard Culas, Ishan Dhakal, Nan Wang

Research output: Other contribution to conferenceAbstractpeer-review

Abstract

There are various reasons for price risk in wheat export for Australian wheat and fluctuation in product price can impact negatively on agricultural sector as well as affect the country’s economy. Despite its significance, price is not well managed in practise. The profit of the agricultural product may decrease due to improper price management. Price risk is also associated with other forms of risk mainly to production risks. We discuss about different risks present in agriculture, their causes and approaches for the proper management of these risks. Further, the trends of wheat export are analysed and shows a great fluctuation in price risk along with the production risk. The national and state-wide data for wheat production and export are discussed along with the comparison of the countries in the world which are major wheat exporting nations. Australian Wheat Board was the solo monopoly body responsible for wheat trading before 2008 as a Single-desk marketing body. The AWB followed the two-price scheme model for selling of wheat. The price of wheat for domestic market and export market were different. AWB was abolished in 2008 and many other agribusiness firms enter in the market for trading of wheat which also created the situation of more price risk. The rise and fall of AWB is discussed along with the consequences the wheat sector has faced after the fall of AWB. Moreover, the current supply chain of wheat is discussed along with different pricing management options. Price management is comprehensively a regulatory framework so that it is always necessary to make appropriate check before implementing any pricing measure.

For the price management in Australian wheat, it comprises of three components of prices. Based on analysis of data from 1993 to 2018, it is shown that there is much more variation in local price and basis price compared to other components future price and exchange rate. There is fluctuation in local price of wheat. Due to the fluctuation in local price and future price it has also impacted in the basis price of wheat. For example, the standard deviation of local price and basis price comes out to be 69.88 and 48.34 which are comparatively high. The more the fluctuation in basis there is more price risk. There does not seem to be regular pattern regarding the increase and decrease of price of wheat. It keeps on fluctuating in course of time. Supply and demand of the wheat is the factor that will change the market outlook of wheat. Developing a market outlook is not about trying to pick market highs and lows, rather its purpose is about analysing information and making informed decisions into whether the price objective can be achieved, and if so, what pricing alternatives can be utilized. This study provides a matrix on hedging versus physical contracts. Unless basis is at high levels and production is certain, producers should be biased towards different hedging instruments rather than physical contracts.
Original languageEnglish
Pages1-2
Number of pages2
Publication statusPublished - 07 Feb 2022
EventAustralasian Agricultural and Resource Economics Society (AARES) Annual Conference - Online conference
Duration: 07 Feb 202211 Feb 2022
https://www.aares.org.au/Events/AARES-2022/introduction

Conference

ConferenceAustralasian Agricultural and Resource Economics Society (AARES) Annual Conference
Period07/02/2211/02/22
Internet address

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