In the past month major developments impacting the Australian wheat market include the continued progress in harvesting the Australia wheat crop, the recent US Department of Agriculture Crop report and the fast approaching inauguration of Donald Trump as US president. While there have been snippets of news regarding improving prospects for consumption of Australian wheat, the stockpile of wheat globally plus relatively favourable northern hemisphere crop forecasts means little impact on values.

At time of writing the Australian wheat harvest is nearing completion, with less than 3% still standing in the paddock. The 2016/17 harvest will be remembered not only for the size of the crop and its relatively uniform quality profile, but also for the length of time it has taken to reap from the paddock, currently over a month slower than the last few years. Physical stocks in the storage network, depending on region, indicate between 30 and 50% of the crop is ASW, between 30 and 40% is APW and up to 25% is H2. While it is nice to have a fairly uniform quality profile, it is certainly unfortunate to see so much volume of ASW at a time when the world is awash with low quality grains. Additionally, of the ‘non-visible’ stocks which are being stored on-farm or delivered directly to feed consumers, the expectation is that a large proportion of the total crop is ASW.

The biggest news from the recent USDA report was a reduction in Winter Wheat-planted acres to the lowest level in over 100 years. The report highlights that the large reduction is predominantly focused on Hard Red Winter (HRW) wheat, with Soft Red Winter (SRW) wheat acres reduced by a much smaller amount. This means it’s becoming more likely that the premium for hard wheat will remain supported while the stockpile of SRW is unlikely to decrease too drastically any time soon.

Due to the high volumes of ASW available and when combined with a well-supplied, lower quality grain market (confirmed by the USDA report), we have recently seen ASW values fall to prices which are competitive into feed wheat destinations around the world. This could be seen as both good or bad news; good in that we have reached levels which mean we should be able to win business and hence deplete some of the large stocks produced; or bad in that we are having to compete against Ukrainian and Argentinian feed wheat to be best priced, so it pressures ASW values in the near term.

Over the last month we have seen some small improvements in the prospects for the wheat market with some life arriving in the US futures market having likely now found a near-term floor. It seems increasingly likely that India will be a large importer of wheat this year. However with such a huge political influence over the import price, it remains difficult to predict this too far ahead of time. Chinese private allocations were handed out in December which brought China to the market, however this was expected.

The weather in northern NSW and Qld remains hot and dry at the moment, which is likely stressing the Sorghum crop. Unfortunately this potential supply issue may be offset by fewer cattle on feed at the moment. Northern hemisphere winter crops went into dormancy in a fairly stable condition, with only some minor issues due to dry conditions in North American HRW country. Canadian Hard Red Spring (HRS) country remained troubled through the end of harvest, meaning they didn’t end up being able to reap all acres. In Europe and the Black Sea most crops seem to have entered dormancy in good condition and now we will focus on the weather in the coming months.

This Friday 20th January, Donald Trump will be inaugurated as the President of the United States of America. This is causing a considerable amount of volatility in the global financial markets. Since early December the Australian dollar retraced 4% from 75 cents to the USD to below 72 cents and has now leapt back to 75 cents. Similarly hard commodity markets have been through some volatile periods, however Iron Ore and Coal are again trading at strong levels.  Prospects for the future of the global economy are currently unknown as Mr Trump has so much control over them and is proving a difficult character to predict. The Australian economy and Australian dollar are likely to continue to be largely driven by a combination of the Chinese economy and US interest rate forecasts throughout 2017.

Thanks & regards,

Charlie Brown