Will the ASX come to wheat’s party?
by Warren Lander
The Chicago Board of Trade grain futures market has once again struggled since I wrote my last article a month ago. In this time a drop of another 33c/bu equating to approximately $20/mt drop in Port Kembla APW pricing, resulting in a total price drop of $60/mt in the last 3 months. With this fall there is no doubt that we are now in a bear fuelled futures market . Reports also stating on Twitter that 60% of the US crop was rated in a good to excellent condition, German harvest will be 20% bigger and Russia will produce a mammoth 83.5mmt, in other words, the current environment is somewhat full of wheat.
But in all of this doom and gloom some rays of sunlight are beginning to shine through. Rainfall that fell in areas of eastern NSW just over three weeks ago are now showing a slight tinge of green with grazing and canola crops starting to take shape. Last week’s rain from Tilpa in the north, Cootamundra in the east and down to Berrigan in the south will allow farmers to start sowing or keep recently planted crops going and increase the optimism for the season until further widespread falls of rain come. Hopefully we will see the next rain event this week and at time of writing it is looking promising.
Another interesting factor to note was that the ASX grain futures for January 2020 traded as high as $340/mt last week. Is this the start of the consumer looking for a way to take some coverage for next year without trying to cause to much noise? Could they be thinking that if it rains and this is the highest price that they have to pay for wheat this year ‘oh well it’s not so bad’, or are they hedging their bets and starting to work towards averaging out their price due to the fact that they think that wheat is going to get a ‘whole lot dearer’? It is worth noting that Port Kembla pricing for the 2019/20 season was at $345/mt last week reflecting similar value to the ASX with Victoria almost $20/mt under that. This largely a result of crop prospects and domestic demand.
The big question will be, can the increase of the ASX price for January 2020 stop the current downward spiral of the old and new crop pricing? Will this be the circuit breaker that the domestic market needs to kick it out of the doldrums and create demand from the consumer worried that they will get left behind which will create competition and drive up price? An additional positive for those exporting goods was that the Australian dollar for the first time since early January 19 pushed through the sub 70 cent barrier against the US dollar, this would have no doubt provided a good opportunity for the consumer to sell a finished product.
As the market showed last year, once the consumer decides to enter the market anything can happen so it will be quite interesting to follow over the next few weeks to see which way they roll.
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