Wheat price hope on the horizon,
Heavy rains in Europe and reported subsequent crop damage in France have given Australian wheat growers some encouragement that wheat prices will not drop any lower.
Wheatbelt graingrowers sitting on bumper crops have become anxious as prices plunged to record lows in recent weeks. Wheat prices are below $250/t and carry- over stock from last harvest is at its highest level since deregulation.
But with the US and the Black Sea region about to head into their harvest period and world grain stocks at record levels, market commentators believe it is too early to say a floor has been put into the market.
Rabobank senior analyst Graydon Chong said despite a small lift in wheat futures over the past few days that had moved prices up off the low of US$4.12/bushel set earlier in the month, Chicago Board of Trade prices remained at 10-year lows.
He said cash prices for WA wheat were sitting at around $244/tonne, which were the lowest since mid-2012.
Mr Chong said while the major fundamental driver of market movements in the past few days had been global weather events, world stocks remained heavy and with no major catalyst to impact those stocks, prices were likely to stay at these levels for many months.
“Currently there are record global stocks for wheat compounded by a heavy world balance sheet for corn, so feed grain globally is in oversupply,” he said.
“It’s really been the perfect storm, since over the last two season we haven’t had a supply side shock around the world, which has resulted in very big crops, and therefore heavy global stocks.
“We haven’t seen particularly strong demand signals to compensate for the increase in the supply and, as a result,we see prices where they are today.”
In fact, Mr Chong warned prices could go lower in coming months as both the US and Black Sea region begin their harvests.
“The market has the potential here to trade lower. When we look at US corn crop, it looks very very good, and so it’s too early to call a bottom in the market,” he said.
“Our outlook for next six months is one of continuing oversupply and we really haven’t seen anything on the radar at this stage to say there will be a weather-driven supply side hiccup.”
Grain analyst Malcolm Bartholomaeus said it was difficult for WA growers to make a full profit on wheat production with prices at anything below $270 a tonne.
“While you can survive at levels down to $230-$220/t, it starts to get really difficult from a cash flow point of view,” he said.
Mr Bartholomaeus agreed weather conditions were the driving fundamentals in market movements in the past few days.
“As the EU harvest progresses it is continuing to disappoint, pushing up prices in the EU, making it harder for them to export; meaning importers will look more towards the Black Sea, the US, Canada and Australia.
“The US seems to be pretty good, the wet period (they experienced early) didn’t impact much of their winter wheat area, and the crop is in extremely good condition,” he said.
“As we are getting later in the season any drought risk on corn and soybean is going to be avoided in US and Canada.”
Ten Tigers director Chris Tonkin said with a reasonable area across the grain-growing region looking to achieve average to above-average yields this season, growers could still see profits at the end of the year if yield potential was realised.
However, he said export prices were not being accurately reflected in domestic values.
“The export values that are being concluded for Russian and Ukrainian wheat are at levels below what our domestic prices are currently, and this is obviously a concern,” he said.
Mr Tonkin said the carry-over of old season grain, which would now be owned and shipped in the months just before harvest, could also have an impact on new season prices.
“The reality of this new process is just now starting to sink in I think, and we might find this gives buyers a reason not to push basis levels and not be so aggressive when it comes to new season crop,” he said.
AgVise Director Shane Sander said growers in the Eastern Wheatbelt could be the strong performers in a year of decile 8-10 levels.
He said growers in the medium to higher rainfall zones would be facing higher variable costs this year given the rainfall, for additional nitrogen and double and triple-knock herbicide applications.
Likewise, WA’s largest wheat grower John Nicoletti is positive about the profitability of wheat production, despite the grim market outlook.
Mr Nicoletti, who this year has planted 50,000ha of leased land to grain, predominantly wheat, said it was too soon in the season to panic about prices.
“That’s where the prices are today, but where they are going to be in six months time is anybody’s guess,” he said.
World consumption of wheat had risen by as much as 120-150 million tonnes per year, so Mr Nicoletti believed it would take what he described as only a few hiccups globally to turn wheat prices around.
“I don’t think we should be hitting the panic button mid-July, there’s three or four months left in the season.
“I’m a positive person, I have to be, since I’m farming in the eastern Wheatbelt.
“I’m probably the biggest gambler anyone knows.”
Mr Nicoletti said the season in the Eastern Wheatbelt was shaping up to be the best for more than a decade.
“We’ve had a terrible run out here in the Eastern Wheatbelt, and even though 2011 wasn’t too bad, there was a lot of grain downgraded at harvest time because of rain,” he said.
“For us, in the Eastern Wheatbelt, this season looks to be the best since 2003 when most people averaged 2t plus out here.
“Come harvest or January/February, prices could jump $20-30 a tonne; let’s hope there is a correction.”
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