POOL UPDATE | 2016/17 ACTIVELY MANAGED WHEAT PROGRAM
Since our last update in early December we have seen both international and domestic wheat prices post noticeable rallies. Despite ongoing burdensome wheat stocks globally, higher export demand, emerging supply concerns and improving economic & commodity conditions, have combined to provide welcome price support.
Globally, we continue to battle a significantly burdensome wheat balance sheet but with much of this bearish news already accounted for prices have reacted positively to recent bullish news. Strong global demand is providing price support with USDA weekly export sales consistently above the expected trade range. With total US wheat exports for the 16/17 marketing year currently 20% above the same point last year. Markets have also found support from concerns over the Northern Hemisphere’s new crop with winter kill concerns and reduced plantings in the US mid-west while the Black Sea growing regions have endured recent deep frosts. In the Southern Hemisphere, concerns over row-crops have flowed into wheat with excessive rainfall in Argentina likely to see crop production revised down. Since our last update CME wheat has rallied over 23USc/bu and is now at levels not seen since November last year.
Domestically, despite the record wheat crop, harvest pressure has eased as producers now look to hold grain in this historically low price environment. As such we have seen the trade required to bid the market higher in order to cover the large export program currently underway. In terms of numbers, as seen by the ASX Mar’17 chart, East Coast Wheat is up around A$3/mt since our last update on the 20/12 and up A$10/mt since the lows reached in early December. Despite this strength the East Coast port zones have seen market forces shift. The SQ market has faced recent pressure with favourable rainfall increasing the sorghum crop and thus creating a more burdensome balance sheet in the region. As such, we have seen the premiums for Brisbane zone wheat evaporate. Conversely we have seen a slight premium emerge in the Port Kembla zone as the new Quattro port drives increased completion for wheat in this region. While the Geelong/Melbourne port zone continues to be held down by the harvest pressure originating in the Western District.
At current low prices, the risk/reward matrix remains skewed to the upside, however, without any quantifiable supply upsets on the 17/18 crop it is likely any sustained rallies will continue to be sold into.
Our latest EPR update reflects the recent strength in prices and hence we have adjusted EPR’s up since the initial numbers at the start of the season. The current low price environment does create opportunities in the right grains in the right areas and we remain confident opportunities will arise from the likely increased volatility this year. Hence we envisage the ability to add value to the pool as well as confident hedging in this current environment.
ASX Wheat prices (3 months Mar’17)
Disclaimer This is not financial or market advice or a risk management or strategy recommendation and growers should consider seeking independent advice to assess the appropriateness or otherwise of this marketing program for their personal circumstances. The information is not exhaustive and should be read in conjunction with the Special One Grain Standard Pool Management Terms and Conditions and Pool Information Sheets.