Markets Archives | Grain Brokers Australia

Farm Gate Returns – Wheat 16/17

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This week we will focus on farm gate returns and how they look for the 2016/17 crop compared to previous seasons. Obviously this year we are seeing much weaker pricing than recent years and for most growers much stronger yields. So the question is, are we any better off than last season for farm gate returns?? Below’s numbers are based off a $40/t farm gate adjustment which is roughly a grower 200km from  port. Cost of production is $300/ha which is roughly what a grower in a medium rainfall zone would be looking at this year.

Chemical and fertiliser applications are up but fortunately prices and diesel are down. So based off these basic assumptions, if you were to grow last year 2t/ha with an average sales price at $290 FIS, you would be making $200/ha. This year to make the same $200/ha margins you would need to grow an additional 0.5t/ha with the prices $50 less ($240).

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It’s Time to be Pragmatic about Wheat Pricing.

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15/08/16

The latest USDA report was generally bearish for wheat due to a 5mmt increase in production. World consumption was increased and stocks to use lowered but the march towards Aussie harvest in the face of these fundamentals is now starting to demand some clear strategy. We must think in terms of cash flow requirements and less so about recent price history.

For a couple of weeks now there has been a fair bit written about the effects of wet weather on the quality and production of Western Europe’s wheat crops. It has been a positive story for wheat price outlook in the face of burdensome global stocks and another year of solid global production.  Last week’s USDA report on world supply and production took the shine of that glimmer of hope, production in the EU was reduced 9mmt but it was cancelled out plus a bit more by increases to Russia and Black sea of 11mmt and Australia, Canada and the US, 3.6mmt. All together global production has been predicted to increase 5mmt.

Thankfully the lift in production forecast was offset somewhat by a reduction in Stocks and an increase in consumption of 3mmt, in signs that the pace of consumption is increasing due to lower global prices. The bottom line is this, bar some kind of unpredicted disaster, be it weather driven, political or some other form of intervention we are now most likely on track for a continuation of low wheat prices. Protein could continue to be an important factor in marketing your wheat and due to lower protein levels in Northern hemisphere harvests and some of the weather related quality issues we could see protein premiums continue to increase. Be sure to push for the best price and the best quality spreads when contracting.  If you have low to no cover on 16/17 price we now suggest taking some cover on price at current levels to ensure cash flow and protect against being a forced seller in a potential buyers’ market come harvest time.

Tom Wake

Confirmation on APW2 please

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Last harvest saw the implementation of the planned phasing out of APW2. For a long time WA has differed from the remaining wheat growing states by receiving APW2 as the base grade for wheat deliveries where APW1 is the norm.  In a move to raise the export standards of Australian wheat it’s a process that is unanimously backed by all of the wheat exporting business operating out of WA. Despite CBH publicly announcing the planned removal of APW2 as a delivery grade or pay grade for 16/17 there are suggestions there is now uncertainty around the final implementation of this decision.

Currently there are only a couple of grain buyers offering spreads for APW2 on 16/17 contracts with the majority expecting the proposed change to be fully implemented this harvest. However if the need to segregate APW2 remains and CBH are considering retaining the grade for harvest growers will need to consider where they stand at this stage of production.

Without APW2 growers will be inclined to feed crops, particularly due to the season so far. With many growers in parts of the state making the decision to invest significantly in inputs in the hope of achieving the protein required for APW1. If we suddenly backflip on the decision where are we left in terms of contract management with individual buyers and their decisions to price APW2. We expect more buyers to begin pricing the spread to APW2 due to the confusion surrounding its inclusion as a delivery grade for the 16/17 season, make sure you discuss their approach to the grade at the time of contracting.

Looking for signals

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Wheat pricing this season has been frustrating for growers holding onto grain well after harvest in anticipation of better pricing opportunities. This approach was justifiable if you are to look at the trend of the previous few seasons with prices at times during post-harvest periods in 13/14 and 14/15 above $300/t in most zones and rewarding growers for that approach.

Notwithstanding the dominating issue, that markets have been impacted heavily by an overburden in global supply and a lack of demand to drive buyer accumulation. We have seen the influence of a number of other factors shaping our local price over this season Understanding what is happening and how pricing is being impacted is a big part of identifying opportunities to make sales in the environment we now find ourselves in.

With a lot of grain held over after harvest buyers are making sure not to bid the market up unless necessary, remembering a lot of accumulation and trading companies have struggled to maintain profitability over previous seasons. Volatility and large variations in price have been uncommon so selling into small rallies has been key. Don’t sit out in hope of large scale movements in price.  The lower cost of shipping slots is also a contributing factor and it has become much cheaper for buyers to walk away from a commitment to ship grain. Which they will do if purchasing those tonnes will be a greater loss making exercise than simply exiting their commitment to ship. This makes it harder to identify short term demand and gives rise to the need for greater information about the rolling and exiting of shipping slots by buyers. This adds further weight to the previous point, don’t expect buyers to get caught out with shipping shorts and push the market up to buy tonnes.  Quality is another big factor and has been a big driver of a shift in pricing between port zones. For much of the 14/15 season Geraldton traded at a premium to Kwinana, Albany and Esperance. Last week Albany traded at a $5 premium to Geraldton, so identifying these types of changes is key to extracting market value and executing sales. We are working hard to identify opportunities across all commodities if you wish to discuss further please get in touch with one of our team.

Outside factors weigh on markets

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With last week’s USDA report not bringing a lot of change to the table other factors are starting to influence and define the grain market in the short term. The Australian dollar has grown legs and is trading in the .75c to .76.5 US cent range. If we go back to the 1st of February the Australian dollar was trading at 0.7023 US cents. While the long term trend had been trending down this sudden surge caught most pundits off guard and has had a negative effect on current Australian grain values.

Weather patterns in the Northern hemisphere could be the next substantial driver of grain markets. There have been unconfirmed reports of below zero temperatures throughout the Kansas Plains growing belt and surrounding states. With grain in its early dormancy stage it is very susceptible to a late freeze. Similar scenarios throughout the Balkan states and the Black Sea could result in a production down grade. Expect choppy trade while these factors are being figured into the market.

Local export and domestic values have not been supported in the previous week. Growers holding grain on farm are having issues getting sales away mainly due to full capacity at local feed and packing houses. With patchy storms and rain forecast over the Easter period Lupin prices could come under pressure as well. The global balance sheet has been to the higher side for a long time and getting FOB sales away for Exporters has been extremely difficult with cheap grain being offered up from other origins and ocean freight being at an all-time low, causing Australia to loose its export advantage into Asia.

Expect trade to be quieter over the upcoming Easter period. If there are any price spikes over the short term look to price into these windows as buyer appetite may be limited. Finally all the best to an enjoyable Easter break and please be safe on the roads.

Chad Jefferis

Markets Find Support

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Last week we saw the latest report from the USDA on global supply and demand. It focused on production and stocks as well as demand for grain and exports globally. Grain markets on a whole probably reacted a little more positively to the report than was expected with wheat corn and soy all making positive moves following the report and backed up by more positive gains during the week. A stronger Australian dollar and a basis that weakened recently has offset local prices though.

Northern Hemisphere weather markets are now starting to come into play with the wheat dormancy period starting earlier due to warmer and drier weather, leaving US winter wheat susceptible to a late freeze. Dry areas throughout the US may come under pressure and this threat along with damaging rain and hail recently in India’s Northern wheat growing areas have since aided the market. A quick snapshot of the latest USDA WASDE report as is most relevant to us here in Aus.

Wheat; a continuation of the recent bearish themes with an increase to stocks. Increases to the production forecast were made for Europe, China and the Black Sea, decreased in Brazil while notably a change to Aussie production decreased to 24.5mmt, finally. The market saw a decrease in US planted acres as a positive and was the main driver of Chicago markets in a US centric view on trading directly following the report.

Barley; again the report was not supportive of barley with supply up mainly in China and Russia. Global supply was increased 0.6mmt up from 145.16mmt to 145.83mmt. Demand was up by roughly the same figure. Stocks were increased from 23.6mmt to 24.2mmt.

Corn; bucked the trend and was slightly bullish. Chinese, Russian and US production was down by a combined 2mmt but the biggest drop came out of South Africa of 4mmt where the country has been gripped by drought. The market was most surprised by the cut to US corn yields however. Global supply decreased by 6mmt from 973.87mmt to 967.9mmt. Global demand was also decreased tempering the reports decrease to supply down 4mmt from 970mmt to 966mmt. Global stocks were decreased by close to 3mmt.

Soybeans; Beans were bullish with both greater consumption and forecast lower production. The reduction of US hectares was seen as key to reducing production overall by 1.4mmt. Global supply decreasing 1.1mmt overall, decreases to the US offset somewhat by increases to China production. Demand was increased by a healthy 1.85mmt form 270.86mmt to 272.7mmt.Stocks were decreased by 3.3mmt overall.

Tom Wake

Weekly Report 12/2/16

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WHEAT

The grain market was quiet on Friday, with the US market slowing down for the Presidents Day Holiday weekend.

CBOT March 16 futures finished the week lower at 457.2US¢/bu down 15.4 US¢/bu for the week.

Chart 160212 WR1

This week saw the release of a very bearish USDA report on Tuesday evening our time. The USDA added 6.8 million tonnes to global wheat ending stocks to a record 238.9 million tonnes. The increase in stocks mainly came from reduced demand from India and China. Wheat usage in China is estimated to be 4.7 million tonnes lower than January’s report as the governments internal economic food policies favour other grains. Global production was revised higher in Argentina (+0.5 million tonnes) and Ukraine (+0.3 million tonnes). Australian wheat remained unchanged in the report at 26 million tonnes – way too high!

Egypt tendered for wheat on Monday and received no offers to do uncertainty about quality restrictions. Egypt in an attempt to clear that up Egypt’s Supply Ministry and GASC have both confirmed that they will accept shipments with up to 0.05% of ergot, and reissued a tender and purchased one cargo of Romanian wheat at US$190.88/t (Cost and freight). It is reported that Bunge has launched legal proceedings to challenge the decision made by Egypt to reject the French Cargo.

India is predicted to harvest its smallest wheat crop in six years after two successive years of below-average monsoon rainfall. The Indian government estimate that Indian wheat production is at 93.8Mt. This figure is down from 95.9Mt last season (USDA) and below government targets of 94.8Mt. This potentially opens the door for wheat imports from Australia.

Attaché estimate, Canadian wheat plantings will fall to a 5 year low of 9.26 million hectares in 2016. This estimate is below the initial estimate from the International Grains Council which sits at 9.5 million hectares.

Russian Ukraine wheat crop at risk. Recent mild temperatures and rainfall has reduced snow cover across central and southern Russia and eastern Ukraine. With some regions of Ukraine are seeing problems of freezing with almost a third of the crops at risk. A close eye will be kept on what the weather does now as we enter that final period of winter as there are a couple of scenarios that could play out and result in elevated levels of winter kill this year.

Chart 160212 WR2

Chart 160212 WR3

To read the full report click the below link

Weekly Report 16_02_12

Weekly Report 15/1/16

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WHEAT

Agricultural markets had a rough week as the market reacted to the volatility in the Chinese economy. China is a major importer on the global market, so any reduction in the Chinese economy raises concern on future demand.

CBOT March 16 futures finished the week slightly lower at 468.4Usc/bu down 0.8 USc/bu for the week.

AUSTRALIAN DOLLAR

The Aussie dollar finished the week at the 70c mark. China’ growth prospects appear sluggish and if their economy continues to slow we can expect our A$ to come under pressure too.

To read the full reports click the link below.

Weekly Report 16_01_18

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