Little chance of a wheat revival this season

06 Jul, 2016 02:00 AM

AUSTRALIAN grain analysts warn farmers here there is little chance of a lift in wheat prices before the 2016-17 harvest.

Lachlan Stevens, managing director of Lachstock Consulting, said there were already extremely high stocks levels globally and major wheat producing regions of the world were all having good seasons.

“There doesn’t look like a supply problem coming up wherever you look, the US and Canadian crops look good, Russia and the Ukraine, Europe and even here in Australia following the good rain, everywhere you look the wheat crop is in good condition,” he said.

Mr Stevens said up until the past month wheat futures had retained some sort of a risk premium on the basis of the market’s concerns about a La Niña weather event impacting the US corn crop, but last week’s US Department of Agriculture (USDA) crop report knocked that school of thought on the head.

“The USDA has increased corn acres, which surprised the market, and there has been recent rain in the corn belt, which has the crop in good stead at present, we just keep losing any potential bullish news.”

Mr Stevens said it increasingly looked like wheat prices lows could test levels where US government loan levels were invoked.

“The US government has a system where farmers can essentially use their grain as collateral and give that grain up for a loan for a 9 to12 month period to allow the growers to wait for a price rebound.

“If the grain price lifts, the grower sells the grain as normal, and repays the loan.”

“If, at the end of that period, the grain price is still below the nominated loan price value, the Government will own the grain and the grower does not pay back the loan.”

Mr Stevens said this scheme would stop the world being flooded with American grain following their harvest, but cautioned this would not be enough to push world wheat prices to levels Australian growers would be satisfied with.

Graydon Chong, grain analyst with Rabobank, said last week’s USDA report had world balance sheets heavier for all commodities but soybeans.

“It’s a pretty gloomy picture for wheat prices, with record stocks, with the current environment it is hard to see a situation where we could see a market rally in the wheat space,” he said.

Mr Chong said the current market was reflective of consecutive big global production years.

“We’ve had back to back years without any major global supply shocks and it weighs heavily on prices.”

Mr Chong said currency swings had also hit hard.

“We’ve seen massive devaluations of the Russian ruble and the Brazilian ruble, both have depreciated by about 40pc over the past year,” he said.

“Both these countries are large exporters of agricultural commodities and the falling currency has incentivized growers there to plant more, even though world prices are falling on the back of over-supply.”

New crop contract prices are currently hovering at between $205-230 a tonne delivered upcountry site.

Andrew Weidemann, chairman of Grain Producers Australia (GPA) said at prices below $200/t Australian producers would be unwilling sellers of wheat.

“Farmers obviously have to cover their cost of production and if prices slip lower they won’t be doing that.”

Mr Chong said world prices could slip further, but added he did not see a sustained dive below $200/t upcountry here.

“The market is under pressure, but that would represent a very low value.”

Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first


Jock Munro
6/07/2016 4:54:51 AM

High global stocks and a big year locally will really bring the deregulation crows home to roost. The merchants who now control the industry have no obligation to sell the crop as was the case with AWB Ltd and it's receiver of last resort provision. In addition,our enviable reputation for quality and service has been undermined thus destroying our marketing edge which was priceless in marketing into a tough environment. The Liberal and Labor politicians should hang their heads in shame for abolishing the iconic single desk against the wishes of the vast majority of growers.
Philip Downie
6/07/2016 7:40:39 AM

The spruikers lauded deregulation when prices increased, what are they going to say now? Price falls nothing to do with deregulation?
6/07/2016 6:23:56 PM

You could have sold noodle wheat for $310/t and APW for $295 a month ago in WA Jock. Land of milk and honey over here. Cheap oil allowing previous uncompetitive origins to cutr our lunch. Nothing to do with merchant control.
7/07/2016 11:15:23 AM

Then no doubt you all have no debt and are paying huge amounts of tax if things are as good as you say, Deregular.
14/07/2016 9:41:34 AM

Quick..! Now is your chance to blame high world stocks, low Black Sea local currency / high farmer returns and Low Oil / reduced Aussie freight advantage on the Mega Merchants. The same Mega Merchants that have been losing significant amounts of $$ over the past 5 years, with some closing their operations. The fact is, we have been and will continue to outperform the world markets despite all the above. Why are you so hell bent on someone selling your Wheat for you..? You could do it yourself...? Similar to WA, NSW was paying 290 NTP 5 weeks ago. Cry me a river
muck jockro
15/07/2016 8:31:27 AM

Philip another ridiculous comment from you. The price still went up and down when AWB were ripping us off. There is a thing called world market and even AWB could not hold back the tide. There have been some good pricing opportunities recently. No we do not want to go back to the dark ages with no control over our marketing.


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