24th Jul 2012, by Agrimoney
Australian wheat prices may be about to outperform, compared with Chicago values, thanks to smaller exportable supplies – and fears that an El Nino could dent them further.
The track price – the cash value excluding storage and handling – of Australian premium white (APW) wheat in the New South Wales Port of Newcastle has dropped to a historically large discount of more than Aus$30 a tonne to Chicago soft red winter wheat futures.
The average discount of Aus$13 a tonne during the first half of 2012 represents the weakest January-to-June performance for six years, and reflects the impact of a succession of bumper harvests, which in boosting Australian supplies have pressed on prices.
Exports out of the east coast and South Australia, where harvests have been particularly strong from a historical perspective, have proved notably robust, setting a record so far in 2011-12.
'Improved basis'
However, "after two years where the exportable wheat surplus out of eastern Australia has vastly exceeded potential, 2012-13 should see the opposite", Paul Deane at Australia & New Zealand Bank said.
Wheat stocks in the region are set to fall by nearly 60% to 3.5m tonnes over the current season, meaning that, even after harvest, exportable supplies may recover only to 12m tonnes - some 3m tonnes short of the maximum capacity at which ports have been running.
"The implication is likely to be an improvement in east coast and South Australian APW wheat track basis levels in 2012-13," he said.
And the dynamic could get extra momentum if the El Nino weather pattern, linked to unduly dry weather in Australia, and often linked to poor harvests, gathers strength.
"With heightened risks of an El Nino forming this spring, risks remain skewed towards south east Australian basis jumping sharply over the next quarter on below trend rainfall, said Mr Deane, who is currently forecasting a national harvest of 24m tonnes.
Wheat vs corn
For the January to June period of 2013, "scope exists for at least a Aus$20-a-tonne improvement in south eastern Australian wheat basis, even with average spring rainfall", he said.
And for countries such as the Philippines, South Korea, Thailand and Vietnam, it means an end to ready and favourably-priced supplies of Australian feed wheat, which they have snapped up an alternative to expensive corn.
"These destinations will have to at least in part switch back to higher priced corn, and/or better milling grade wheat, in 2012-13, coinciding with a time when global export availability for grains will be shrinking sharply."
The forecast of a switch from wheat to corn contrasts with expectations, at a global level, from many analysts that dire prospects for the US corn harvest will send demand the other way.
Australian wheat prices may be about to outperform, compared with Chicago values, thanks to smaller exportable supplies – and fears that an El Nino could dent them further.
The track price – the cash value excluding storage and handling – of Australian premium white (APW) wheat in the New South Wales Port of Newcastle has dropped to a historically large discount of more than Aus$30 a tonne to Chicago soft red winter wheat futures.
The average discount of Aus$13 a tonne during the first half of 2012 represents the weakest January-to-June performance for six years, and reflects the impact of a succession of bumper harvests, which in boosting Australian supplies have pressed on prices.
Exports out of the east coast and South Australia, where harvests have been particularly strong from a historical perspective, have proved notably robust, setting a record so far in 2011-12.
'Improved basis'
However, "after two years where the exportable wheat surplus out of eastern Australia has vastly exceeded potential, 2012-13 should see the opposite", Paul Deane at Australia & New Zealand Bank said.
Wheat stocks in the region are set to fall by nearly 60% to 3.5m tonnes over the current season, meaning that, even after harvest, exportable supplies may recover only to 12m tonnes - some 3m tonnes short of the maximum capacity at which ports have been running.
"The implication is likely to be an improvement in east coast and South Australian APW wheat track basis levels in 2012-13," he said.
And the dynamic could get extra momentum if the El Nino weather pattern, linked to unduly dry weather in Australia, and often linked to poor harvests, gathers strength.
"With heightened risks of an El Nino forming this spring, risks remain skewed towards south east Australian basis jumping sharply over the next quarter on below trend rainfall, said Mr Deane, who is currently forecasting a national harvest of 24m tonnes.
Wheat vs corn
For the January to June period of 2013, "scope exists for at least a Aus$20-a-tonne improvement in south eastern Australian wheat basis, even with average spring rainfall", he said.
And for countries such as the Philippines, South Korea, Thailand and Vietnam, it means an end to ready and favourably-priced supplies of Australian feed wheat, which they have snapped up an alternative to expensive corn.
"These destinations will have to at least in part switch back to higher priced corn, and/or better milling grade wheat, in 2012-13, coinciding with a time when global export availability for grains will be shrinking sharply."
The forecast of a switch from wheat to corn contrasts with expectations, at a global level, from many analysts that dire prospects for the US corn harvest will send demand the other way.
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