AWB 2018/19 Season Starter Pool December EPR (Market Update)

Today AWB are increasing the majority of EPRs in all portzones with wheat markets lifting during December, whilst we are also amending grade spreads to be more in-line with current market spreads. For example in WA we have increased H1 & H2 by $14 whilst reducing ASW1 & ANW1 by between -$1 and -$6.

 

Key Activity

• We are holding basis hedges at minimal levels with only a small lift over the month, from 50% to 54%.  As harvest winds up in many areas selling has slowed and bids have increased.

• We have no additional wheat futures hedges on and we continue to benefit from global values also grinding higher. March 19 CBOT futures are up ~US20c/bu, or circa A$10/tn since the November update.

• The ‘risk off’ tone to markets is directing us to keep FX hedges in line with physical commodity sales only (54% hedged). With equity markets under pressure, oil prices collapsing and the US in a rate hike cycle, it is not a bullish environment for a commodity currency like the AUD. However momentum does shift quickly in FX markets and we will continue to monitor closely, especially as it is not uncommon to see a ‘risk on’ rally in early January.

 

Market Insights

• Since our last update, demand has awoken and is now trying hard to engage the grower seller. Of particular interest is H1 & H2 in WA, in a year when hard wheat is relatively scarce in the West, pushing premiums to season highs.

• Recent rains across the East coast have been received with open arms, but have started to weigh on new crop Sorghum prices. The crop is far from made, but has the potential to relieve Northern feed markets, given the huge planted area.

• Of the yet-to-be-harvested crop, the continued rains and cool weather in Vic have stalled progress and we are yet to determine the extent of downgrades. That said, demand for Stock Feed Wheat is strong and historically small discounts will mean the financial impact should be minor.