16/17 Actively Managed Wheat Program (Update)

Market Snapshot:
Since our last update both domestic and global markets have consolidated following significant market weakness during July and August. The USDA’s ‘stocks & seeding report’ in late June was seen as bullish as the US seeded the lowest acreage since 1919 and a warm/dry forecast for the Central US sent prices soaring. Since then we have witnessed international prices slide as US weather concerns eased, EU wheat production rebounded from last year’s record lows and Black Sea wheat production forecasts reached new record highs. US Gulf wheat is now amongst the world’s lowest cost origin and with Black Sea and EU wheat harvests approaching completion the acute pressure looks to have eased with seasonal lows having likely now been formed. With Australian, Canadian and Argentinian crop conditions continuing to deteriorate a demand pull market has seen values turn to the upside.

Globally, CBOT futures fell around 139USc/bu from their July highs to reach their lowest levels since December 2016. The USDA’s largely bullish report in late June saw CBOT wheat rally close to 90 USc/bu but since then fundamental news turned largely bearish. The USDA’s July report was perceived as bearish despite wheat stocks and production being revised down with global wheat stocks still at a very comfortable 35.5%. With funds, that had until that point built significant long positions on the dry/warm US conditions, amplifying the swing to the downside. Furthermore, in the past couple of months speculation that adverse weather across the Northern Hemisphere would lead to reduced yields has amounted to nothing. The USDA’s August report took the market by surprise and added further to the bearish sentiment. The better than expected Black Sea crops, although expected exceeded expectations, seeing an additional 8 million mt added to the global wheat crop with Russia expected to harvest a record 81 million mt. While EU production also rebounded, led by France which is expected to harvest 37.8 million mt an increase of 37.1% year-on-year. In the US, excessive wet/cool conditions were replaced by hot/dry conditions which although damaging for the US spring crop was too late to cause significant damage to the US SRW or HRW crop. Since touching yearly lows values have rebounded around 50USc/bu in recent trade with easing harvest pressure and increased concern over the now fast approaching Southern Hemisphere crops providing the back drop for support. Furthermore, US corn and soybeans crops which had progressed largely unhindered are now beginning to struggle under excessive dryness, which is providing spill-over support for wheat markets.

Domestically, markets had been unable to resist the wider global weakness in wheat values. Despite ongoing rainfall deficiencies in much of Southern QLD, Northern and Central NSW supporting values, above average conditions in Southern NSW and Victoria has kept a lid on values with grain in Southern NSW comfortably being driven north to fulfill domestic demand. Since reaching a high of $317/mt in mid-July the ASX Jan’18 wheat contract fell around $76/mt, to its lowest level since May 2017. Despite the pull back in values CME/ASX new crop basis remained over 90cents and has firmly turned off the export tap which has seen increasing volumes of grain turned back into the domestic market by the trade. Since the August low, values have rebounded in line with the firmer offshore market and the continued dryness/frost conditions across the East Coast. Basis has now firmed to over 140cents with the firmer AUD also playing its part having rallied over 410 points since July to around 0.8005 in recent trade. As has been the case since harvest, northern markets continue to see the most resilience as strong domestic demand and limited grower selling, amid the ongoing dry season, seeing the drawing arc expand well into Southern NSW to cover requirements. In the past two months the spread between delivered Brisbane ASW and delivered Geelong/Melbourne has ballooned from around $32/mt to over $75/mt. With the dry outlook for the East Coast forecast to continue it is likely this spread will persist until a better gauge of how to ration the 2017/18 crop can be made. Looking forward, it still appears we may have finally formed a seasonal low, however, with the world still awash with grain and Australia increasingly priced out export markets, at some point we will need to reconcile with a new crop exportable surplus and with ideas that rationing to date has gone too far. As such it will be increasingly difficult for the domestic market to justify further gains independent of offshore markets and even then the justification may not stack up.

Details
Next Payment: December 2017
Finalisation: December 2017
FOB Changes: Various (depending on grade and port zone).

ASX Wheat prices (Jun’17-Sep’17)

Wheat_Sept_1.png

CME Wheat Price (Jun’17 – Sep’17)

Wheat_Sept_2.png

The latest EPRs are outlined in the below table

Wheat_Sept_3.png

Data published on 21 September 2017.

Contact the office on 1300 28 12 28 if you have any further questions.

Disclaimer: This is not financial or market advice or a risk management or strategy recommendation and growers should consider seeking independent advice to assess the appropriateness or otherwise of this marketing program for their personal circumstances. The information is not exhaustive and should be read in conjunction with the Special One Grain Standard Pool Management Terms and Conditions and Pool Information Sheets.