Reports suggest flat year for wheat prices

Reports suggest flat year for wheat prices

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Both offshore and local factors look as though they will make it hard for local wheat prices to move too much higher in the coming months.

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BOTH offshore and local factors look as though they will make it hard for local wheat prices to move too much higher in the coming months.

May saw the release of the monthly United States Department of Agriculture World Agricultural Supply and Demand Estimates (WASDE) report, containing the USDA's first estimates of 2020/21 world balance sheets.

In what has become a familiar story, the first 2020/21 estimates showed world wheat ending stocks coming in at a new record high.

With the current estimate of 2019/20 global end stocks coming in at 295 million tonnes, the projected increase to 310mt well and truly breaks through the 300mt barrier this key metric has been approaching for a few years.

The trends in the stocks to use ratio also confirm this growth in global supply side.

Current estimates showing the stocks to use ratio popping up above the 40 per cent mark this coming season, also indicating that, on a global scale, increases in supply continue to outweigh demand.

In earlier months a dry start to the season in western European and Black Sea counties had provided hopes of some pre-Northern Hemisphere harvest volatility and support.

A recent improvement in conditions, along with the fact that time between now and this harvest is running out, have seen hopes of this support (and a flow on into local prices) fade.

Notwithstanding this, current USDA estimates have combined Russian and Ukrainian wheat production increasing by 2pc, year-on-year, with some alternate forecasts expecting declines of about 7pc.

Speculation remains about what might happen once restrictions in old crop wheat exports are lifted there, in terms of rules for new crop exports, also continues to linger.

Subsequently there is still optimism about a jump in offshore and local prices.

Not surprisingly, this made it hard for wheat prices to rally too much in the month of May.

CBoT December wheat futures were down 0.8pc month-on-month, as of Friday.

With the Australian dollar having recovered back to pre-COVID-19 levels in the back half of May the drop off seen in Australian dollar terms, 2.9pc, was more severe.

Following this, local prices also moved lower in May, with a drop off in 2020/21 Kwinana APW of 3.4pc.

At least in the data being collected by Profarmer, there seems to be enough buyer depth to suggest that this market has a reasonable idea on where it thinks it should be landing.

As of Friday, the best bid on Profarmer was sitting at $317 per tonne, with the $315/t barrier having emerged as a support level in recent weeks.

As discussed by Profarmer at the start of this month, despite being a pullback to what has been seen in recent years, at decile 7-8 levels these prices are still reasonably firm in a historical context.

With Australian markets pricing in a return to at least average production this season (or at least sufficient East Coast production to meet their domestic demand) basis values are not likely to reach the same levels they have in recent years.

Friday's best bid on Profarmer for Kwinana 2020/21 APW was $27/t the December CBoT wheat contract where as the best bid for Kwinana 2019/20 APW was $105/t above the July CBoT wheat contract.

With further transhipments of WA grain to the east coast beyond the end of this year looking unlikely, the pricing of wheat (and other grains) in the WA market looks as though it will again be a question of "at what price can we export?" this coming season.

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