Easter and ANZAC Day mean it’s been two weeks since we’ve updated readers on grain markets. The news is bad for wheat, and good, in a way, for canola.
Not a lot has changed on the supply and demand front for wheat. It might be that some risk premium is being stripped out of the market. US winter wheat condition remains 50% good or excellent, with another 34% fair. Not much trouble here for markets to get concerned about.
The Russian crop was causing headlines and adding some price premium. A fortnight ago, the Sirov Report reported that Russian wheat production was increased by 1.1 MMT to 79.7mmt due to better-than-expected winter crop survival.
The Russian harvest is still expected to be lower than last year, but there was some speculation earlier in the year that they were headed for much lower production.
The lack of crop issues has seen CBOT Soft Red Wheat (SRW) drift lower over the last month and is now nearing 12-month lows in our terms. The stronger Australian dollar is not helping, with SRW now nearing $300/t.
While ASX Wheat futures have followed SRW lower, less than $10 has come off major port-based pricing. Geelong and Port Kembla ASW values are still just above $330/t. Dry weather in major growing parts of the East Coast is supporting prices in the face of lower international values. When it’s dry, when the new crop is due to be sown, growers will often hold the old crop.
In WA, where markets are more export-focused, prices have largely fallen in line with SRW. Kwinana SRW is down $20 in the last three weeks to $365/t.
Unsurprisingly, barley is holding its ground. Geelong Barley is now priced at almost the same price as ASW. Local feed demand is bolstering the barley price, and it looks like exporters are having to compete.
Figure 2 shows international canola futures prices rising further in April. It looks like a short-term squeeze, however, with the deferred contracts sitting nearly 10% lower than the spot contract. This would be why local prices have remained relatively static in the face of the international price rise.
What does it mean?
There is nothing for wheat sellers to get excited about at the moment. However, there remains significant scope for international prices to rise if dryness starts to affect crop conditions. The lower the prices go, the less downside there is. Wheat consumers should be thinking about managing new crop prices with wheat nearing significant support levels.
Key Points
- Wheat prices are sliding as risk premiums are removed from prices.
- International canola futures have spiked, but it looks like a supply squeeze.
- It is a good time for grain consumers to hedge against international market rallies.
Click on figure to expand
Click on figure to expand
Data sources: Bloomberg, Mecardo
