WHEAT consumers around the world are slowly chewing the vast stockpile created by the massive global harvests of the past three years but further production downgrades will be required to push values of the grain up substantially.
Australian wheat prices currently sit at about $275 a tonne for old crop and forward contracts for the 2018-19 crop are at about $290/t, having lifted in line with a rise over the past month on world markets.
However, the difficulties in establishing higher values over the medium term were highlighted this week when US wheat futures took a dip this week due largely to sluggish export data, in spite of high profile woes with the hard red winter crop in the US plains states.
Chicago Board of Trade futures were at US477 cents a bushel last Friday, up on the lows posted in mid-March but around 17c/bu below highs earlier this month.
In terms of basis, Australian values remain slightly higher than US, which are in turn higher than the rest of the world.
Brad Knight, GeoCommodities, said this meant Australian bulk wheat was not competitive in terms of exports at present.
“There is a little bit being done in containers but at present we’re out of the money on bulk exports,” Mr Knight said.
Aside from the concerns about the US crop, locally the Australian industry is also becoming spooked about dry conditions, especially in New South Wales.
“The market is starting to behave like it is a massive drought, even though you would only say parts of NSW are really in that position,” Mr Knight said.
He said April marked an important psychological milestone in the growing season.
“Farmers like to see the rain start in April and every day past Anzac Day there is no rain they tend to get antsier, especially in the areas where there is no subsoil moisture, even though the break is historically more likely to come a bit later,” he said.
Commonwealth Bank commodity analyst Tobin Gorey said the next two months would be critical in terms of setting a tone for the marketing year ahead as northern hemisphere crops push into the growing season proper.
“We expect to see balance sheets tighten up, not just in wheat but feed grains and oilseeds as well,” Mr Gorey said.
He said he expected wheat stocks to continue to tighten, albeit from record levels.
“The interest will be in just how far stocks come back and whether there is another major production downgrade, but it looks like we could be coming out from that comfort zones in terms of stocks.
“I’d describe it as a twinge in stocks, it certainly isn’t a strain as yet, the hamstring hasn’t been ripped off the bone, but it is something we are just feeling a little.
“The market is already factoring in issues with the US hard red winter crop through those key wheat states such as Kansas, Nebraska, Colorado and Oklahoma and the lingering cold weather could have an impact on spring wheat plantings if it continues for much longer.”
Cargill Australia corporate affairs manager Peter McBride said all eyes would be watching the northern hemisphere crop over the next couple of months.
“Over the past two weeks Aussie wheat prices have gone up $13/t in line with international new crop wheat, which is mainly due to dryness on the US plains and increasing concern about Australia’s wheat growing area,” he said.
“In the short-term, we’re watching the HRW situation in the US keenly, it is due to be harvested from late May onwards and more rain is required to bolster prospects.”
“Any further reduction in tonnages there will be bullish for domestic and international values.”
Brad Knight, GeoCommodities, says farmers are still holding a portion of their 2017-18 harvest to sell over coming months.
In terms of local stocks, Mr Knight said farmers still held good reserves of grain on-farm.
“Farmers are hanging onto some of their grain as a drought hedge, it is something they are getting very good at doing year in, year out,” he said.
“While this is nothing new it is interesting to see the general lack of liquidity in the trade.”
However, he said most major end-users are still in a relatively comfortable position in terms of stocks.
“There’s a few hand to mouth sales going on, but most people are happy with their position for now.”