Wheat situation explained

Peter McMeekin, October 11, 2016

Nidera Australia, Peter McMeekinHarvesting may have started in a few regions, but on the whole the wheat harvest across most of Australia will be a little later than normal this year, due to the relatively wet winter and extremely mild spring to date.

Nidera Australia’s current wheat production estimate is north of 31 million metric tonne (mmt) which would be a record Australian wheat crop. Assuming a carry out of 5mmt from last season and domestic demand of 8mmt, Australia will have an exportable surplus of more than 28mmt for the 2016/17 season. An optimistic wheat export program for Australia for the next twelve months would be 20mmt which, if achieved, would lead to a 60% increase in the year-on-year carry out to around 8mmt.

So let’s have a look at current grower bids versus the export market for some of the key port zones across the country as at Monday, October 10. Bear in mind that the world has plenty of wheat at the moment and there are no foreseeable production issues across the globe. Starting in Brisbane, the APW multigrade grower bid was around AU$236. I am calling the FOB market US$197, which converts (after fobbing costs) to a grower bid equivalent of approximately AU$212 – so domestic basis has plenty of work to do to become export competitive out of Queensland.

In New South Wales and Victoria the APW multigrade bids were around AU$233 at the beginning of the week. Let’s say ocean freight is a couple of dollars more expensive out of these zones so that puts the FOB market at around US$195. This equates to a track equivalent of AUD$217. Here again domestic basis must work lower in order to find export interest as we move closer to harvest.

In the west, the APW multigrade bids were similar to east coast values at around AU$233. The big advantage the Western Australian grower has over the east coast is the much cheaper fobbing costs, which is reflected in a grower bid equivalent about AU$6 higher at AU$223. Using the same FOB value as Brisbane puts the Western Australian market within AU$10 of working into export homes.

Lastly, South Australia where the Port Adelaide grower bid was AU$221 earlier this week. Pencilling export interest in at US$195 FOB equates to a grower bid of approximately AU$212. Like Western Australia this is less than AU$10 above export parity on the day. However on the west coast of South Australia the story is a little different. Port Lincoln APW multigrade bids were the lowest across the country on Monday at AU$216 versus export interest at around AU$214 (US$195 FOB). This means that domestic basis in the Port Lincoln zone has already done most of the work needed to buy export business and are best positioned to get the new crop campaign rolling.

Of course the big unknown from a wheat perspective is the profile of the crop. Most expectations are for a much higher proportion of ASW than in most years and the export picture looks even worse from a price viewpoint. Current export demand for ASW wheat would be approximately AU$30 (US$22) lower meaning that the grade spread needs to widen across all port zones for ASW to work its way into the international marketplace.

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


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