The quality profile of Australian grain is firmly in the spotlight. It had been assumed that the Aussie crop would carry the worlds milling wheat hopes through to the new season North-ern Hemisphere crop. However, with the percentage of feed wheat eroding milling stocks, the global consumer is going to have to reach further.

The quality profile of Australian grain is firmly in the spotlight.  It had been assumed that the Aussie crop would carry the worlds milling wheat hopes through to the new season Northern Hemisphere crop.  However, with the percentage of feed wheat eroding milling stocks, the global consumer is going to have to reach further.

It begs the question, when does the wheat market crest?  We are in very rare air in terms of historical pricing.  Government interventions, droughts, floods, force majeure events have all colluded to making exportable stocks the tightest in decades and prices reaching all-time highs.  So how long can it last?

Much will depend on production in the key growing areas of the Black Sea, Europe, North  & South America.  The Black Sea region encompassing Ukraine and Southern Russia had been experiencing some rain deficits, however this is expected to ease with the arrival of rains in the next week.  While temperatures are dropping, it will help to bolster crop conditions ahead of dormancy. 

As a result, we are seeing a healthy US$39/t inverse develop in Black Sea wheat futures relative to Jan ’22 compared to July ’22. (figure 1) This is roughly AU$65/t that the market is expecting to see erode from spot values depending on production.

The Euronext (MATIF) milling wheat contract is also showing a steep inverse from the Dec ’21 contract to Sep ’22 of €36/t  or AU$58/t.  We are not seeing the same inverse level in the CME (CBOT/KBOT) markets, perhaps indicating that the market needs to maintain a strong price signal to plant more wheat area.  Either way, it is important to remember that the goal posts have shifted, and Black Sea values tend to set the tone for global cash prices.

Long story short, global milling wheat prices are expected to remain elevated until we get some clarity around Northern Hemisphere production.  In order to maximise harvested value, I think there is good opportunity to sell milling quality now, and hold feed grains until the local market settles down and we get a better understanding of the quality profile. 

The week ahead….

Both traders and farmers alike should be reluctant to hold grain beyond May/June next year when the price signal would indicate there is a steep correction due.  Of course, this scenario can change, and given the tightness of stocks, we will likely see a series of peaks and troughs, with plenty of good selling opportunities in between.

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Black Sea in USD (RHS). Click on graph to expand

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Data sources: USDA, World Ag Weather, Reuters, Mecardo

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