Wheat Weekly: Proprietary S&D
Supply and Demand analysis produced by the grains team is well received by a significant number of participants in the industry. Comments this week included:
USDA report Thursday probably will not reflect all the bad news coming our way and any weakness should be a buying opportunity. Our first supply and demand below shows the extent of the many problems we face this coming year. We are facing very dry conditions in Europe, from France to Baltics, the weather in US plains preventing fieldwork ( spring wheat at 27 pct planted down 40 pct year on year, and dry conditions in the HRWW belt suggest our US crop forecast needs to be reduced.
India , as we have been saying since quite a while in this report, will become an importer, even if they stop exports tomorrow, as the minimum carry out they can afford, is 12.5 mMT or about 5 weeks consumption, Russia and Ukraine exports will probably not reach the optimistic number we have in the table, Pakistan, Iran, Iraq will all be forced to similar or higher import volumes. We expect that up to 10 mMT has been deferred into New Crop positions which may now be an increasingly expensive strategy. This report sounds dramatic, and were looking for some good news, but the increase in global wheat stocks will be mostly in Russia and Ukraine and therefore accessible only after this conflict comes to a close and infrastructure is repaired or sanctions are lifted.
Australia
The Aussie Dollar has sunk below 70 cents this week, driving domestic price action with most port zone pricing rallying across the country. Milling Wheat continues to perform strongly with the trade looking to buy the remaining old crop left in the grower’s hands. Demand for ASW/SFW is less certain with a significant proportion of the end of year carryover likely to be in these grades. Philippines and Thailand have been making enquiries about ASW/Feed Imports, but their buying price expectations are still low. Growers have started looking at some new crop sales, but basis on new crop is very low compared to historical levels so there is no rush to forward sell wheat at this stage. The March export figures were released this week, with exports down slightly from February but at 2.32 mMT of bulk exports, but still high compared to historical levels.
The cracks in the supply chains are starting to show though, with significant delays now common across the country, Kwinana is now out to around 20 days with Port Lincoln sitting at around 18 days. This could get worse as the season goes on as well as the supply chains will have to start moving in tonnes from further out as they churn through the stock close to port. China has been the biggest buyer of Australian Wheat so far taking 438k in March, we expect this to tail off slightly as the year goes on as they did a lot of their buying before the jump in price post Russia’s Ukraine invasion. Traditional buyers Indonesia, Philippines and Vietnam also had big months and taking 286k, 350k and 230k respectively, they will need to continue to buy at these sorts of rates through the season as now India is running out and they won’t be able to switch to Black Sea in back half of the year.
United States
US markets continue on the quest for clarity as it relates to Ukraine impact and weather. Developments in both of those subjects are well publicized to our readership but suffice it to say neither subject will be easy to overlook over the coming weeks and months. Cash traders continue to struggle to get timely execution in RAIL, BARGE, or TRUCK. Merchants pushed to higher delivered bids during the week, partly to cover the drop in futures and partly to cover the increasing shipping cost from diesel and overall inflating rates. Commercial diesel pricing at all-time highs and continues to make higher highs as the week marched on.
Wheat market futures close up .65 for the week. Another week with a disappointing condition report. There were some significant rains in areas of the HRW belt, enough to stem the declining condition reports over most of the belt. In southern reaches of the production area the crop has progressed far enough along the maturity curve that rains will do little to add bushels. In northern regions, beneficial rains will add some bushels and there will be great debate. The annual Kansas Wheat tour begins on MAY 11th and will be well publicized as teams of experts travel the different regions of the state to look at actual samples from fields. Given the importance and variability we have this year, those reports from the field will create volatility. Follow Cash trading for the week continues to provide little volume and large spreads between the bid and ask. Basis levels firm / firming.
Barley
Tunisia bought 75k MT in their last week tender at USD 433.89 to 438.99 PMT Cfr June July shipment.
Old crop is more or less over, with little buying interest from Saudi buyers, nor Chinese, but with few offers too. Matif strength in new crop pushing values higher. Black Sea origin absence, late planting in Canada and longer delays in loading in Australia along with planted acreage reduction forecast due to high Canola prices all argue for barley values to maintain or likely increase.
Another firm week for barley, with local prices continuing to strengthen. With prices continuing to improve on the promising signs for new crop and Saudi interest picking up for out the curve new crop barley. Planting throughout the country continues, with growers continuing to target canola as much as they can to capitalise on the strong prices, with reduced barley seeding taking place. Rainfall looks promising again, with forecasts predicting another good rainfall in the coming days, whilst SA could do with some more rainfall. Port congestion continues to provide headaches on the trade side, particularly in WA with Kwinana port delays reaching 20days to start the May shipment period.