Aug 25 2016

It’s Time to be Pragmatic about Wheat Pricing.

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15/08/16

The latest USDA report was generally bearish for wheat due to a 5mmt increase in production. World consumption was increased and stocks to use lowered but the march towards Aussie harvest in the face of these fundamentals is now starting to demand some clear strategy. We must think in terms of cash flow requirements and less so about recent price history.

For a couple of weeks now there has been a fair bit written about the effects of wet weather on the quality and production of Western Europe’s wheat crops. It has been a positive story for wheat price outlook in the face of burdensome global stocks and another year of solid global production. Last week’s USDA report on world supply and production took the shine of that glimmer of hope, production in the EU was reduced 9mmt but it was cancelled out plus a bit more by increases to Russia and Black sea of 11mmt and Australia, Canada and the US, 3.6mmt. All together global production has been predicted to increase 5mmt.

Thankfully the lift in production forecast was offset somewhat by a reduction in Stocks and an increase in consumption of 3mmt, in signs that the pace of consumption is increasing due to lower global prices. The bottom line is this, bar some kind of unpredicted disaster, be it weather driven, political or some other form of intervention we are now most likely on track for a continuation of low wheat prices. Protein could continue to be an important factor in marketing your wheat and due to lower protein levels in Northern hemisphere harvests and some of the weather related quality issues we could see protein premiums continue to increase. Be sure to push for the best price and the best quality spreads when contracting. If you have low to no cover on 16/17 price we now suggest taking some cover on price at current levels to ensure cash flow and protect against being a forced seller in a potential buyers’ market come harvest time.

Tom Wake

Jul 27 2016

Markets Focus on Supply Fundamentals

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Last week we had the latest USDA report into US planted acres and grain stocks. While we expected some increases to US hectares for wheat and soybeans (we got them but not as big as expectations) it was corn that surprised the market. Corn has been well supported on the perception that it had lost out to bean hectares and not had the timing at the back end of the sowing window for the market to ‘buy hectares’.

US wheat was expecting a total area somewhere between 48 and 53million acres, USDA has reported 50.8m acres down on the 54.64m acre figure from last year but still above average area of 49.8m acres. US winter wheat harvest is adding to market pressure with growers in a selling mode despite a 7 year low in the wheat market.

Beans were expected to come in somewhere between 82 and 85.7million acres, the estimate came in at 83.7. Higher than predictions in March but lower than expected overall. With strong US sales continuing to be made US soy futures have been the light in the darkness for grains and oilseeds over recent sessions.

Corn was acres were expected to fall in a range between 92 and 94milliion acres instead the USDA gave the market an additional 500,000 hectares over the March estimate, coming in at 94.1m acres. Coupled with stocks that were again above the upside expectation, at 4.7billion bushels vs 4.6billion and corn was hit hard on Chicago futures markets last week.

With wheat and corn competing for a share of feed markets the big interruption to corn markets has sucked wheat into the downdraught somewhat. We are now looking globally at a two speed wheat market, with very cheap general purpose wheat eroding values. However we are seeing demand pick up for the lower, cheaper grades and this will eventually be the solution to oversupply though it will take some time. Holding onto physical old season wheat does not look to be a rewarding exercise from here on in. Grain Brokers can discuss a number of alternatives on this front so please contact one of our brokers at any time.

Jun 28 2016

Brexit explained

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Last Friday we saw one of the biggest days in financial markets of all time with the surprise announcement that the UK have voted to exit the European Union. Although this won’t take effect for at least 2 years, the impact of the referendum was instant with foreign exchange markets reacting strongly and global stock markets seeing daily falls greater than during the Global Financial Crisis.

If we were to show how major global currencies faired in comparison to one another in the hours immediately following the announcement, then this basically sums it up; GBP < Euro < RUB < AUD < CAD < USD < JPY. So unexpected was this decision by the Brits to the market that the pound Stirling hit 1 year highs and 10 year lows against the USD within a couple of hours either side of the announcement. The stronger USD against most other currencies did see US export derived currencies including corn, wheat and soybeans weaken immediately following the announcement.

The weaker GBP and Euro could have a negative impact on our competiveness into export markets, however Aussie wheat hasn’t been competitive into these markets anyway due to the large sales of German and French wheat into Egypt and Middle East of late. On the positive, Aussie wheat is being priced more favourably into Indonesian markets last week than previously before that so hopefully not all is lost.

Nic Sewell

Jun 23 2016

Grain Brokers Australia Aghaul Truck being filled

Confirmation on APW2 please

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Last harvest saw the implementation of the planned phasing out of APW2. For a long time WA has differed from the remaining wheat growing states by receiving APW2 as the base grade for wheat deliveries where APW1 is the norm. In a move to raise the export standards of Australian wheat it’s a process that is unanimously backed by all of the wheat exporting business operating out of WA. Despite CBH publicly announcing the planned removal of APW2 as a delivery grade or pay grade for 16/17 there are suggestions there is now uncertainty around the final implementation of this decision.

Currently there are only a couple of grain buyers offering spreads for APW2 on 16/17 contracts with the majority expecting the proposed change to be fully implemented this harvest. However if the need to segregate APW2 remains and CBH are considering retaining the grade for harvest growers will need to consider where they stand at this stage of production.

Without APW2 growers will be inclined to feed crops, particularly due to the season so far. With many growers in parts of the state making the decision to invest significantly in inputs in the hope of achieving the protein required for APW1. If we suddenly backflip on the decision where are we left in terms of contract management with individual buyers and their decisions to price APW2. We expect more buyers to begin pricing the spread to APW2 due to the confusion surrounding its inclusion as a delivery grade for the 16/17 season, make sure you discuss their approach to the grade at the time of contracting.

Jun 23 2016

Man standing in Wheatfield arms open | Grain Brokers Australia

Countryman 17/5/16

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It is great to see such a positive start to the season for most across WA with solid early rains seeing the first fully wet plant in some time. Let’s hope this continues throughout the season and those in the north can pick up some solid rains to get them up and running with the rest of the state.

Old season pricing has been unusual to say the least over recent weeks with basis remaining strong in all port zones (and strengthening in Kwinana) despite futures strengthening and our dollar weakening against most other major currencies. This is contrary to the general belief that basis will weaken when international prices rise in Aussie dollars.

With shipping slots being pushed back towards the back half of the year and many being cancelled, it is hard to see how basis can continue at these levels with such a large wheat carryout expected. Further to this, we are seeing a strong inverse between old and new crop pricing in WA despite there still being considerable carry to the forward contracts in the Chicago, Kansas, Minneapolis and even Matif wheat exchanges. This should signal alarm bells that old season local wheat prices are overvalued or new season prices are undervalued. If you are holding a large proportion of your old season wheat, this is the type of scenario you will want to avoid.

Pricing out old season crop over the short term is the simplest strategy but for more information on the above or to see how Grain Brokers can add value to your business, please don’t hesitate to call one of our team.

Jun 23 2016

Woman in grain field on a call | Grain Brokers

Looking for signals

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Wheat pricing this season has been frustrating for growers holding onto grain well after harvest in anticipation of better pricing opportunities. This approach was justifiable if you are to look at the trend of the previous few seasons with prices at times during post-harvest periods in 13/14 and 14/15 above $300/t in most zones and rewarding growers for that approach.

Notwithstanding the dominating issue, that markets have been impacted heavily by an overburden in global supply and a lack of demand to drive buyer accumulation. We have seen the influence of a number of other factors shaping our local price over this season Understanding what is happening and how pricing is being impacted is a big part of identifying opportunities to make sales in the environment we now find ourselves in.

With a lot of grain held over after harvest buyers are making sure not to bid the market up unless necessary, remembering a lot of accumulation and trading companies have struggled to maintain profitability over previous seasons. Volatility and large variations in price have been uncommon so selling into small rallies has been key. Don’t sit out in hope of large scale movements in price. The lower cost of shipping slots is also a contributing factor and it has become much cheaper for buyers to walk away from a commitment to ship grain. Which they will do if purchasing those tonnes will be a greater loss making exercise than simply exiting their commitment to ship. This makes it harder to identify short term demand and gives rise to the need for greater information about the rolling and exiting of shipping slots by buyers. This adds further weight to the previous point, don’t expect buyers to get caught out with shipping shorts and push the market up to buy tonnes. Quality is another big factor and has been a big driver of a shift in pricing between port zones. For much of the 14/15 season Geraldton traded at a premium to Kwinana, Albany and Esperance. Last week Albany traded at a $5 premium to Geraldton, so identifying these types of changes is key to extracting market value and executing sales. We are working hard to identify opportunities across all commodities if you wish to discuss further please get in touch with one of our team.

Jun 14 2016

JUNE USDA WASDE REPORT SUMMARY

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Not a report full of surprises on Friday night, more just in line with expectations. Wheat saw big increases in production, but nothing that we didn’t know beforehand. HRW wheat also got a boost of production. Beans and Corn ending stocks cut in the US, but as global figures were cut less than expected, no real change there.

Wheat Neutral to Bearish – CBOT SRW JUL Down 15c

World production for 16/17 up nearly 4 million mt, comprising mostly of the US, EU and Russia.
World consumption up 3.4mmt, mainly India, the EU and the US.
World stocks to use ratio down slightly to 36%

Barley Neutral to Bearish

World production up 3.1 million mt, mostly EU and Ukraine
World demand up 2.7mmt, mostly EU, Saudi Arabia and Iran
World stocks up .6mmt
World stocks to use ratio up slightly to 16.41%

Corn Neutral to Bearish – CBOT Corn JUL Down 3c

World production up 0.7 million mt – All Mexico
US ending stocks below traders estimates
World demand up 1.2mmt – mostly US
World stocks down 2 million mt
World stocks-to-use ratio down to 20.25%

Soybeans Neutral to Bullish – CBOT Soybeans JUL Up 1c

World production down 0.5mmt
World demand up 0.6mmt
World stocks down 2mmt
Stocks to use ratio down a considerable 72 points to 23.12%

Nic Sewell

May 11 2016

Weekly Report 9/5/16

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BEANS/CANOLA

July-16 Chicago soybean futures made strong gains as the market was boosted by further confirmation of crop damage in Argentina. Settling at 1034.6 US¢/bu.

Canola futures followed soybeans closing CA$510.5/t for the week.

The fallout from flooding in Argentina continues to buoy soybean markets. Soybean prices gained following further confirmation of crop losses in Argentina and the US reported strong soybean export sales for the time of year.

An estimated 0.79Mha of Argentine soybeans have been lost due to the heavy rain in April according to the Buenos Aries Grain Exchange (BAGE). On top of earlier losses of 0.75Mha caused by previous weather issues, over 7% of the planted area has now been lost. Though BAGE maintained its output forecast at 56Mt, the latest report did not rule out further adjustments, with quality and harvest concerns affecting a further 0.7Mha.

Drier weather last week allowed the Argentine soybean harvest to progress, with 42% of the area now harvested, up from 24% a week ago. However this is still behind the 69% complete a year ago (BAGE)

Canadian canola stocks were reported last week at 7.49 million mt, down 10% year on year, reflecting a smaller crop and positive exports. Planting of the 2016 crop is ahead of average in key provinces.