Protein spreads for new crop wheat remain well supported heading into harvest as the market continues to be cautious of the profile of the crop. This support is being driven by the elevated potential for wet conditions closer to harvest driven by La Nina-like conditions on the east coast and the recent frost events in Western Australia.

Week-on-week we have seen the east coast H2 premium over APW increase by $2 to be around $28. Over the same period the ASW discount to APW on both the east coast and in South Australia has been steady at $15 and $13 respectively. This is all happening as harvest commences in Central Queensland, the harvest “gut slot” across Australia is probably only a month away and we are looking at a potential record crop.

As we stand today, the protein profile of this year’s wheat crop is anybody’s guess. I have seen plenty of widely varying estimates on the proportion of the wheat crop APW or better, suggesting it would be easier to hit the bullseye on a dart board in the local at 2am than get close to the final outcome. The grower seems to be the most optimistic and I hope they are right as there will be relatively good rewards this year for quality wheat.

As we know the east coast has seen plenty of rain throughout the growing season and the land is now saturated leading to the current flood events in central and southern NSW. This should lead to a dilution of protein and a higher proportion in the ASW/AGP bins, but there is still plenty of urea going onto accessible country in an attempt to maintain protein and bank the rewards. A very game strategy in a year such as this, but one will never ever know if one never has a go.

In Western Australia a widespread frost event on Saturday 17^th September and further milder and less general events last weekend has generated an enormous amount of twitter traffic. Unfortunately with frost, the production impact is not immediately evident and is not truly known until headers go into the paddock. That said there will undoubtedly be areas cut for hay and a quality and production impact on those affected crops that go through to harvest.

The most unfortunate consequence of the rain and frost is that Australia will be producing more of what the world already has plenty of: feed wheat. In Russia, the situation is similar as their record harvest winds up with a significant portion of the later crops affected by sprouting. The Canadian harvest has been progressing slowly and continues to be hampered by rain, which is certainly having an effect on the quality profile.

On the export front, east coast values remain rich compared to levels where business is currently being done into Asia out of the Black Sea and Russia. APW values in South Australia and Western Australia are close to working into export channels, but only to destinations with inelastic Australian demand at the moment.

In the US, winter wheat plantings have started and are running average pace versus the past five years. However, the market is generally expecting 5-7% decrease in planted acres in the US, but no significant pull back in acres elsewhere across the globe.

It is therefore hard to expect global supply of wheat to be noticeably down on planted area alone in the following season, unless we have weather disruption somewhere in the next six to twelve months.

Source: Nidera Australia Weekly Market report: Peter McMeekin is Nidera Australia’s Origination Manager.