Wheat and Barley markets rallied across the East coast in April for various reasons. The key growing regions in vast parts of NSW and Southern QLD have had an underwhelming start to their Winter crop campaign due to any meaningful rains failing to materialise.
Augmenting the cost into delivered consumer homes is the price increase in fuel brought on by the crisis in the Middle East. The combination of these two factors separated the Darling Downs and Geelong/Melbourne markets by approximately $70p/t, (the Darling Downs being higher). The supply and demand imbalance is a result of a lack of confidence in the current season and the increase in price would normally buy Darling Downs consumers extra freight to pick-up grain from further South, but high fuel costs limit this. This is also compounded by the fact that NSW is experiencing its own problems due to lack of moisture in the soil profile. It is not inconceivable that the Darling Downs demand could be satisfied by vessels arriving into Brisbane from WA which has occurred in the past when it faced a similar situation. This effectively means the Darling Downs market is somewhat dictated by the value the WA exporter can achieve into other export markets.
Augmenting the cost into delivered consumer homes is the price increase in fuel brought on by the crisis in the Middle East. The combination of these two factors separated the Darling Downs and Geelong/Melbourne markets by approximately $70p/t, (the Darling Downs being higher). The supply and demand imbalance is a result of a lack of confidence in the current season and the increase in price would normally buy Darling Downs consumers extra freight to pick-up grain from further South, but high fuel costs limit this. This is also compounded by the fact that NSW is experiencing its own problems due to lack of moisture in the soil profile. It is not inconceivable that the Darling Downs demand could be satisfied by vessels arriving into Brisbane from WA which has occurred in the past when it faced a similar situation. This effectively means the Darling Downs market is somewhat dictated by the value the WA exporter can achieve into other export markets.
Victoria was fortunate to have some widespread rainfall in February and March which has provided good conditions for sowing. However, follow up rains are needed particularly with the final week of April being unseasonably warm.
The East coast domestic consumer has continued with their grain procurement program, albeit with a less than enthusiastic supply side, while the opportunities in the bulk export market have thinned. Exporting of grain and pulses in containers continues, but bulk exports have faced difficulty due to a strong AUD and increases in logistics costs again due to the Middle East situation.
Local prices have also been driven somewhat by the lift in international futures markets.
The concerns around conditions on the U.S plains has resulted in a stronger price for HRW quality, grown in that region and reflected on the Kansas futures exchange. The bulk volume in the U.S is typically SRW quality which is traded on the Chicago exchange. As harvest commences in the U.S, the Chicago futures price could drop throughout May as the crops prospects become better known and more assured. High protein grades in the U.S such as DNS are traded on the Minneapolis futures exchange. This quality normally trades at a price premium over HRW and SRW grades but in recent weeks has traded around parity levels with HRW and even trading below at some stages. This gives us an understanding as to how the various grade spreads in Australia might be affected by the volumes and price values being traded on the prime U.S exchanges. That is, confidence in supply exists for both lower and high protein Wheat with conjecture around protein prices that would fall in the mid-range of the scale.
Our local futures market (transacted through the ASX) , APW1 is the grade attached to the contract on the East Coast. APW1 on ASX is comparable in world trade with SRW on CME – the Chicago exchange. Comparatively, at the time of writing APW1 represents around a $40p/t premium to its American counterpart. This is the prime reason for the quelling of local exports as international consumers switch to other origins for supply; particularly for U.S grain which like Australian grain is a quality product but at a significantly better price. With Wheat being the prime soft commodity staple across the world, naturally all sellers and consumers continue to keep a close watch on what’s happening in the Black Sea and the events in the Middle East.
Australian prices as mentioned are well over international levels for comparable qualities at the moment. The opportunity is slipping away to execute more bulk export tonnes into international markets, but the season has a long way to go, invariably global dynamics will continue to shift and market mechanics will respond accordingly.
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Author
AuthorJustin Fay
Commodity Manager
