Australia’s is 75% of the way through harvesting our largest ever wheat and barley crop. ABARES recently updated their wheat production estimate to 32.5MMT. This is up from 28.08MMT in September. Barley estimates have also increased, now at 10.6MMT, up 1.1MMT.
Currently, growers are focused on completing harvest to get a good gauge on both quality and quantity before committing to a marketing program. Selling opportunities for growers this season have been canola, chickpeas, high protein wheat and malt barley. Quality has been good with most wheat grading ASW or APW, and most barley grading F1. Canola oil has been very high due to the cool wet spring period. This has been adding to the premiums received by growers.
Strong demand for wheat from Asia and India has assisted in offsetting the increase in Australian production. India recently reduced their import tariff from 10% to 0%, which could see an increase of 2MMT export demand from Australia. On the back of this news, South East Asian buyers are securing their supply of Australian wheat for April to June and taking advantage of the low prices. It is positive to see an increase in demand from India and Asia this year, as it will likely add support to wheat prices over the coming months.
Barley has been well supported for nearby prompt demand due to the delayed harvest and nearby shorts into China. Exporters and domestic consumers for nearby delivery have been keeping the barley market stable. Saudi has recently tendered for 1MMT of barley for the January to March period with Australia securing 50% of this demand. Saudi imports roughly 10.5MMT of barley per year and Australia normally supplies 2.5MMT of this. Australia will need to price more demand from Saudi this year in order to draw down on the large production from this harvest.
Despite the world being awash with wheat, Australia is showing a trend of being well-priced and positioned to execute a strong export program. This will help maintain values throughout the year. The shipping stem is showing there will be a large increase in exports for the first quarter of the marketing year. Even with deferred positions and lack of grower selling, this points to the trade being short and the need to fill positions.
The Chicago wheat market is showing .55c per bushel of carry. This equates to $27 Australian dollars of carry between March 2017 and December 2017. This carry is reflected in the global market place and suggesting that although the market place is well supplied with wheat here and now, it may not to be the case in the future.
Global wheat production has increased for the last four years leading to current large stockpiles and a low priced environment. Low prices incentivise farmers to plant other commodities; we are seeing this in the United States where seeding is at 70 year lows. If this trend continues, we could see the global balance sheet begin to find more equilibrium.
Currently, there are concerns in the US over dry conditions in the central plains. India will need to increase imports to meet demand and an unprecedented speculative short position continues to weigh on Chicago wheat futures. A threat to production will find these funds scrambling to buy back their positions leading to a strong rally in wheat.
Agfarm wishes you a safe and merry Christmas and every success for the new year.
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