It takes more than a spike in wheat futures prices and drifting currency to get Australian growers off the tractor and back to the office to sell new-crop tonnage, as evidenced by lukewarm activity in Australian eastern states wheat markets this week.
US wheat futures prices spiked almost 8 per cent higher on Monday night, but by Thursday night the market had handed back the gains, and trade sources said growers were too busy planting this week to crank up sales.
“The futures popped because the structure of the market saw the funds heavily loaded on the short side and when the snowstorm hit, there was a run for the door,” Agracom trader Brett Donoghue said.
Fuelling the rise had been the potent combination of traders’ record short positions and last weekend’s massive freezing western Kansas and Colorado storm on Hard Red Winter (HRW) wheat crops wanting spring growth.
Monday’s US futures gains eroded in following days, and completed their back-tracking on Thursday as this week’s annual Kansas wheat tour figured the damage was not as bad as initially thought.
The strength of the US dollar and a weakening Australian dollar this week helpfully boosted new crop cash wheat bids to season highs as traders continued to seek value in basis ownership.
The AUD this week has traded in the range around 75 ½ US cents to Friday lunchtime around 73 ¾ US cents.
Logistics clouds sales
But prices are just part of the grain-trading equation, and Mr Donoghue said rail and road logistics were key in executing current-crop wheat sales to fill end-user and export demand.
As a result, US futures changes this week had barely moved Australian cash values for current-crop wheat in the bulk-handling system.
“Delivered is quite tight because of logistics; it’s not so much about the value of the commodity, but more about getting freight under it.”
“Logistics is the issue. Because the export program is so massive, the logistics task is under pressure.”
Mr Donoghue said industrial action which had disrupted Victorian rail movements of grain to port had put logistics under further pressure.
“When you have such a full program, any little hiccup causes big problems.”
As a result, logistics operators with the ability to deliver extra capacity were in high demand.
The Kansas City futures hike was explained by Market Check strategy and managed programs manager Nick Crundall, saying the market had already rallied 3 to 4 per cent prior to Monday’s rise, as the weather was already a concern.
The Kansas City Board of Trade wheat futures market, where the HRW contract is traded, led the rally.
“HRW definitely correlates the most to Aussie wheat and our competitiveness against the US into key export markets has a big influence on our price, so if we get to a situation where either price or quality or both removes them from the export grid, it’s positive news for Aussie growers.”
“From an Australian growers’ perspective, this event had a bigger impact on new-crop than old, although we saw a nice uptick in local 2016/17 prices as a result.”
“This has provided an opportunity to look at selling a portion of growers’ old-crop position and also for those looking at forward sales.”
“Hedging for new crop is also an option considering the strength in the US futures so really the rallies are good news domestically.”
Mr Crundall said many growers were sitting on some old-crop tonnage of wheat and barley, and were looking for rallies through the key northern-hemisphere growing window to quit stock.
“If you were holding ASW1 anywhere across Australia from harvest time, you’ve picked up about $20/t minus your carry fees, so it’s not a bad outcome for those who held.”
Barley area on notice
Strong chickpea and canola prices had almost assured strong plantings of those crops, but not barley. If wheat prices advance further in coming weeks, Mr Crundall said wheat could crib area from barley.
“It’s tough to think they would hold off growing canola and chickpeas, with canola still double wheat prices, and chickpea margins out of this world.”
“It’s not too hard to imagine wheat might take some barley acres, considering how poorly priced barley has been over the last few seasons,” he said.