Wheat price upside still in play

28 Sep, 2012 02:00 AM
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Gavilon Grain accumulations manager Leon Ryan (left), with Gavilon wheat trading manager Chris Brown at last week's Mingenew Expo.
Gavilon Grain accumulations manager Leon Ryan (left), with Gavilon wheat trading manager Chris Brown at last week's Mingenew Expo.

THERE could be further upside to wheat prices as WA moves closer to harvest.

That was the view from Gavilon wheat trading manager Chris Brown at the company's special Grain Insight conference held at last week's Mingenew Lions Mid West Expo.

Mr Brown said the company's view, while largely unchanged from the last couple of months, still held firm that wheat prices would either remain stable or head higher.

"Over the last month we have seen the Chicago Board of Trade set up a stable range," Mr Brown said.

"Until we see further inputs into the market to take it out of that range it will translate into higher cash prices."

Mr Brown said there were numerous factors supporting Gavilon's view.

"The US corn market has been devastated by drought and that is the key driver for wheat prices," he said.

"I know this is old news but it certainly needs to be factored in.

"Corn consumption has also yet to be addressed and it is uncertain whether prices are high enough to ration demand at this stage.

"The USDA has trimmed its September production figures from those it posted in August.

"Also these predictions allow for harvested hectares and do not take into account abandonment, so production estimates could be overstated by two million hectares."

Mr Brown said Russian wheat production could also impact heavily on prices.

"We would expect to see Russia restrict its wheat exports in some way, either officially or simply because it just doesn't have the stocks," he said.

"Russia hasn't done anything definitive with its export policy yet but its offers are limited and it does not have the usual quantity in the line-up.

"Estimates are that its export capacity could be reduced by five to eight million tonnes."

As many WA farmers are all too aware, Australian wheat production estimates are also going backwards weekly.

"There has been further revision of the Australian crop," Mr Brown said.

"Current production forecasts sit between 20m tonnes and 22mt depending on who is making them.

"But the USDA still has Australian wheat production sitting at 26mt.

"End users of Australian wheat are still being slow to respond to this and are not coming in to buy at the current prices.

"We think they are still in denial in terms of price and production levels.

"They will have to come into the market at some stage soon and this gives us confidence that price does not have a lot of downside and could be supported in the future.

"But the price test will also come when new season Australian grain hits the market."

Mr Brown said there were several factors that could change Gavilon's view on pricing.

"Price could drop if US corn and soybean production exceeds expectations," he said.

"If Australian crop receives much needed finishing rains then wheat production could finish off stronger than predicted and the potential waiver of the ethanol mandate in the US is also still hanging over the market."

Mr Brown said there had been some international trade carried out recently.

"We saw a small amount of Russian activity," he said.

"There was 150,000 tonnes of Russian wheat traded into a recent Iraq tender. The values traded into that were $US415 (delivered), which is an equivelant to $A325 (FIS WA).

"We are seeing WA values not calculating into the export pathway at present.

"The next most competitive wheat of Australian origin on the internation market is South Australia.

"WA is between $US15-20 overvalued when compared to SA at the moment.

"This disconnect between SA and WA prices need to correct.

"If we have similar production to 2010 (5mt) then wheat still needs to find its way onto the export market and if we are $17/t over SA then it would not be a good situation."

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