IN THE past two months, Black Sea milling and feed wheat values have rallied around US$20 per tonne as record demand and exports continued to gnaw away at what was considered a record crop.

At the same time, ASW and APW wheat export values in both South Australia and Western Australia have managed to strengthen, but only by $10/t.

Accordingly, the freight advantage into Asian markets for Australian wheat moved about $5/t in Australia’s favour as freight rates rose.

All in all, Australia’s competitiveness has improved around $15/t in the past three months throughout Asian markets.

This change in price relativities now puts Australia only $5-10/t away from competing against Black Sea origins into various feed wheat markets.

In an environment where Australia only needs to export 14-15 million tonnes, feed wheat demand from any markets other than Philippines, where Australia enjoys a 7 per cent tax advantage, is not needed.

What we currently see is some very solid support for the Australian market due to these price relativities.

Any further rallies in Black Sea values will therefore need to be matched by Australia to ensure that there is no excess Australian wheat disappearing into the feed channels at the expense of reasonably inelastic milling demand, particularly at current pricing spreads.

Do we see any downside to Black Sea values?  The same scenario outlined above has also played out in Black Sea/EU cash relativities, where EU wheat values are much more competitive now versus Black Sea than throughout most of the season.

With a large exportable surplus still in France and, to a lesser degree, Baltic countries, this can likely place some semblance of a cap on Black Sea values if EU wheat starts to displace demand.

In the current market, however, there is limited evidence of this. Russian exports continue to be strong and we are not seeing French values calculate to Egypt.

Russia also continues to bask in the sunshine of record export demand, and is approaching the back end of its export campaign over May, June and July.

Seemingly, it will be difficult for us to find anything but support, and perhaps even stronger old-crop Russian values in the next few months, as higher values become apparent here.

In closing, new-crop growing conditions in Europe and Black Sea countries remain very good now, and the rallies we have seen have been led by demand, as opposed to rallies caused by supply fears in US futures.

It will make it even more interesting for cash values if this was to change at all in coming months.

Source: This week’s Nidera market commentary was contributed by COFCO International wheat trader, Luke Mason.