Extreme pricing unlikely to be seen as harvest kicks off

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By Matt Wallis

Last week we saw the release of the USDA's September World Agricultural Supply and Demand Estimates. The global outlook for wheat saw supplies reduced marginally however the decrease in production was offset by higher stocks of 1.29mmt. Of those countries to have production estimates cut, Australia with 1mmt led the way while the US crop was cut 500kmt. The European Union's wheat crop was revised up 1mmt to 152mmt on the back of favourable growing conditions.

Noting the Australian wheat crop was reduced by 1mmt to 18mmt, this still seems to be on the high side of local trade estimates which has seen forecasts suggesting a wheat crop as low as 15.5mmt which would be the lowest in over a decade. Recently there have been comparisons to the season of 2006/07 where NSW produced around 2.5mmt of wheat.

In what was deemed a slightly bearish report, futures markets fell 13USc/bu. The following day, fresh news circulated on the continuing US-China trade war saga where Trump now says China will purchase between $40-$50 billion in agricultural goods. Wheat futures markets reacted accordingly and rebounded to trade up to 515 USc/bu – the highest since mid-July this year. In Aussie dollar terms, this converts to around $278/t for December delivery.

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The global production estimate is now pegged at 765.53mmt of which 132mmt represents Chinese production not bound for export markets. A reduction in global demand some 1.2mmt combined with a year on year increase in global ending stocks (excluding China) by 3.37mmt to a near record 140.84mmt, has wheat well supplied globally.

Moving onto the domestic picture and harvest has kicked off in Central Qld with yields averaging around 2.5-3t/ha around Capella, just north of Emerald. Quality to date has been of various protein grades and that trend is likely to continue as the harvest moves south.

Pricing into the Darling Downs and Western Downs markets has remained well bid with the market inverted from October through to February. Harvest has also kicked off in the northern parts of South and Western Australia over the previous 10 days.

The trade has become accustomed to transhipments between states of late to fill the shortfalls of supply on the east coast. Currently parcels are pricing from rail sites north of Adelaide delivered into the Darling Downs and Western Downs markets.

Harvest is starting to push into NSW with small areas having harvested barley in Central NSW with tonnage staying in on farm storage and quality yet to be known.

Last year's harvest bought about extreme pricing in majority of areas which is unlikely to be seen again due to the reduced appetite of the trade and end users to gain coverage for longer than necessary. Having said that, pricing remains strong leading into the harvest period. The Griffith zone is bid $370-$380 delivered Jan/Feb while Port Kembla track markets remain range bound around $405-$415 with premiums adjusted for specific sites.

www.awb.com.au