Smart Marketing | Crop estimates shrink, again

Crop estimates shrink, again


Grains
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The reason for the sharp rally last Friday night was confirmation that US FOB wheat prices had in fact fallen far enough to be competitive with Russian FOB values into key Middle East markets.

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CHICAGO Board of Trade wheat futures were on a roller coaster last week after December futures plunged to the lowest levels since January, before recovering with a sharp upward move on Friday night to head back to what had been the bottom of the recent trading range.

The December contract bottomed at US485.5 cents a bushel after failing to make new highs about two weeks ago when price stalled at US527c/bu. The reason for the downward move was doubts over whether US exports would be able to lift enough over the rest of the year to cover the slow start to the marketing year, and deliver a year on year lift in exports.

In Australian dollar terms the decline pushed CBOT futures down to $252.87 a tonne. If we were having a “normal” season with basis levels about $20/t ($45/t in WA), the cash market in Australia would have traded down to around $275/t ($300/t in WA). Instead we still had prices of $390/t in South Australia, $425/t in Victoria, $460/t in NSW, with Kwinana at $358/t.

The free on board price for US and Russian wheat for the Egyptian tender was US$219/t. With exchange rates and fobbing costs accounted for, Australian wheat would have a price to the grower of $270/t to $280/t  port.

The reason for the sharp rally last Friday night was confirmation that US FOB wheat prices had in fact fallen far enough to be competitive with Russian FOB values into key Middle East markets. A tender by Egypt saw US wheat offered at the same FOB price as the cheapest Russian wheat, although once shipped, Russian wheat would still be cheaper because of lower freight rates.

So Australian cash prices remain well above international prices because of our drought and severe grain shortage in eastern Australia. Not all of our crop will be required domestically, so at some stage our surplus wheat will have to be priced at a level to be able to move into external markets.

Meanwhile ABARES have released an update on its Australian crop projections. It is suggesting the total winter crop will be 15 per cent lower than its September forecast because of the dry September, frost, and the large area that has been cut for hay. Harvested area is projected to be down 8pc because of the hay cut.

For wheat the downgrade to its September estimate has been reported at 13pc, leaving our wheat crop at about 16.6 million tonnes. This compares to the 18.5 million tonnes used by the US Department of Agriculture in its October report. Smaller crops in both Australia and Argentina should be incorporated in the USDA’s November report.

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