Nic Sewell Archives | Grain Brokers Australia

Grain being harvested | Grain Brokers

Brexit explained

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Last Friday we saw one of the biggest days in financial markets of all time with the surprise announcement that the UK have voted to exit the European Union. Although this won’t take effect for at least 2 years, the impact of the referendum was instant with foreign exchange markets reacting strongly and global stock markets seeing daily falls greater than during the Global Financial Crisis.

If we were to show how major global currencies faired in comparison to one another in the hours immediately following the announcement, then this basically sums it up; GBP < Euro < RUB < AUD < CAD < USD < JPY. So unexpected was this decision by the Brits to the market that the pound Stirling hit 1 year highs and 10 year lows against the USD within a couple of hours either side of the announcement. The stronger USD against most other currencies did see US export derived currencies including corn, wheat and soybeans weaken immediately following the announcement.

The weaker GBP and Euro could have a negative impact on our competiveness into export markets, however Aussie wheat hasn’t been competitive into these markets anyway due to the large sales of German and French wheat into Egypt and Middle East of late. On the positive, Aussie wheat is being priced more favourably into Indonesian markets last week than previously before that so hopefully not all is lost.

Nic Sewell

Man standing in Wheatfield arms open | Grain Brokers Australia

Countryman 17/5/16

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It is great to see such a positive start to the season for most across WA with solid early rains seeing the first fully wet plant in some time. Let’s hope this continues throughout the season and those in the north can pick up some solid rains to get them up and running with the rest of the state.

Old season pricing has been unusual to say the least over recent weeks with basis remaining strong in all port zones (and strengthening in Kwinana) despite futures strengthening and our dollar weakening against most other major currencies. This is contrary to the general belief that basis will weaken when international prices rise in Aussie dollars.

With shipping slots being pushed back towards the back half of the year and many being cancelled, it is hard to see how basis can continue at these levels with such a large wheat carryout expected. Further to this, we are seeing a strong inverse between old and new crop pricing in WA despite there still being considerable carry to the forward contracts in the Chicago, Kansas, Minneapolis and even Matif wheat exchanges. This should signal alarm bells that old season local wheat prices are overvalued or new season prices are undervalued. If you are holding a large proportion of your old season wheat, this is the type of scenario you will want to avoid.

Pricing out old season crop over the short term is the simplest strategy but for more information on the above or to see how Grain Brokers can add value to your business, please don’t hesitate to call one of our team.

JUNE USDA WASDE REPORT SUMMARY

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Not a report full of surprises on Friday night, more just in line with expectations. Wheat saw big increases in production, but nothing that we didn’t know beforehand. HRW wheat also got a boost of production. Beans and Corn ending stocks cut in the US, but as global figures were cut less than expected, no real change there.

Wheat            Neutral to Bearish – CBOT SRW JUL Down 15c

  • World production for 16/17 up nearly 4 million mt, comprising mostly of the US, EU and Russia.
  • World consumption up 3.4mmt, mainly India, the EU and the US.
  • World stocks to use ratio down slightly to 36%

Barley                        Neutral to Bearish

  • World production up 3.1 million mt, mostly EU and Ukraine
  • World demand up 2.7mmt, mostly EU, Saudi Arabia and Iran
  • World stocks up .6mmt
  • World stocks to use ratio up slightly to 16.41%

Corn               Neutral to Bearish – CBOT Corn JUL Down 3c

  • World production up 0.7 million mt – All Mexico
  • US ending stocks below traders estimates
  • World demand up 1.2mmt – mostly US
  • World stocks down 2 million mt
  • World stocks-to-use ratio down to 20.25%

Soybeans        Neutral to Bullish – CBOT Soybeans JUL Up 1c

  • World production down 0.5mmt
  • World demand up 0.6mmt
  • World stocks down 2mmt
  • Stocks to use ratio down a considerable 72 points to 23.12%

Nic Sewell

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