Tom Wake Archives | Grain Brokers Australia

Markets Focus on Supply Fundamentals

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Last week we had the latest USDA report into US planted acres and grain stocks. While we expected some increases to US hectares for wheat and soybeans (we got them but not as big as expectations) it was corn that surprised the market. Corn has been well supported on the perception that it had lost out to bean hectares and not had the timing at the back end of the sowing window for the market to ‘buy hectares’.

US wheat was expecting a total area somewhere between 48 and 53million acres, USDA has reported 50.8m acres down on the 54.64m acre figure from last year but still above average area of 49.8m acres. US winter wheat harvest is adding to market pressure with growers in a selling mode despite a 7 year low in the wheat market.

Beans were expected to come in somewhere between 82 and 85.7million acres, the estimate came in at 83.7. Higher than predictions in March but lower than expected overall. With strong US sales continuing to be made US soy futures have been the light in the darkness for grains and oilseeds over recent sessions.

Corn was acres were expected to fall in a range between 92 and 94milliion acres instead the USDA gave the market an additional 500,000 hectares over the March estimate, coming in at 94.1m acres. Coupled with stocks that were again above the upside expectation, at 4.7billion bushels vs 4.6billion and corn was hit hard on Chicago futures markets last week.

With wheat and corn competing for a share of feed markets the big interruption to corn markets has sucked wheat into the downdraught somewhat. We are now looking globally at a two speed wheat market, with very cheap general purpose wheat eroding values. However we are seeing demand pick up for the lower, cheaper grades and this will eventually be the solution to oversupply though it will take some time. Holding onto physical old season wheat does not look to be a rewarding exercise from here on in. Grain Brokers can discuss a number of alternatives on this front so please contact one of our brokers at any time.

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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.

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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.

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

Radiowest Interview 2/11/15

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Tom Wake on Rural Focus

Recently Tom Wake from the Geraldton GBA office was asked to do an interview with Vin Dawes on Rural Focus. The below interview details Tom’s history in the grain industry, the service GBA offers and contact details for the Geraldton GBA office.

If you missed the interview from Monday 2/11/15 feel free to have a listen as to what was discussed.

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