After initially plunging following the USDA’s modest cut to US wheat acres for 2018, wheat futures have stabilised over the past week. While it is difficult to describe the futures market as bullish, there are currently a few factors at play that offer support at current levels.
The hedge funds continue to hold a large short position in Chicago wheat, the US southern plains remain exposed to dryness and winterkill, and despite the abundant Black Sea supply, Russian export value continue to inch higher. We have also seen the forecast for Argentina turn dry for the next few weeks, forcing some analysts to rethink their corn and soybean production numbers.
The past week has also seen the Australian dollar break US$0.80 for the first time in over 4 months. This move has been driven by weakness in the US dollar, the strength of crude oil and iron ore, and the latest round of Chinese economic data. The Chinese economy grew at 6.8% in the 4th quarter of 2017, taking their annual growth rate to 6.9%. The uncertainty caused by the US government shutdown has also been supportive of our dollar, after the US Congress had initially failed to reach agreement on a funding deal that would keep government agencies open.
Figure 1: 2017-18 APW1 – Profarmer Best Bid – $/tonne
Despite the 7% jump in the value of the Aussie dollar over the past 6 weeks, and the fact that Australian wheat isn’t overly competitive into many export markets, the strength the local basis has been a quite supportive to cash prices. APW1 bids in the Port Adelaide zone remain at $240/mt, while a healthy premium for hard wheat exists in most port zones. Buyers of F1 barley in the Port Adelaide and Port Lincoln zones remain active at $230/mt, although the price spread for F2 and F3 has come under pressure in recent weeks.
Figure 2: 2017-18 F1 Barley – Profarmer Best Bid – $/tonne
AGG have developed a number of programs for growers that spread price risk across the season. You can check the AGG Co-op website www.aggcoop.com.au for current EPRs and progress reports, as well as access to information about all AGG managed programs.
All EPRs are quoted $/mt GST exclusive at Port and net of management fees and storage charges. Advance payments are made in line with the nominated EPRs from 1 November 2016.
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