Strong gains in futures markets have been a key feature over the past week. The Chicago wheat contract has strengthened by more than 8% from the lows of mid-January, reaching a 2 ½ month high and closing above the technically important 100 day moving average. Ongoing dryness in Argentina, poor crop conditions across the US Southern Plains, and the weakness of the US dollar have spurred the hedge funds to cover some of their short futures positions. The latest crop conditions report for the US state of Kansas has seen the percentage of the wheat crop rated good or excellent fall to just 14%, with almost half of the state’s crop rated in poor condition.

Last week the Australian dollar broke above US$0.81 for the first time since September 2017 after comments from the US Treasury Secretary stating that a weaker US dollar could be good for the US economy. Adding further support to the Aussie dollar has been the strength in commodity prices. Crude oil prices have hit their highest level since 2014, while coal and iron ore values remain strong. Looking at the week ahead, the Aussie dollar has the ability to strengthen further if our 4^thquarter inflation data comes in better than expected.

Figure 1: 2017-18 APW1 – Profarmer Best Bid – $/tonne

Despite the rally in futures markets, the strength in the Australian dollar has kept local values largely unchanged over the past week. APW1 bids in the Port Adelaide zone remain in the low $240/mt range, while buyers of F1 barley in the Port Adelaide and Port Lincoln zones remain active at $230/mt.

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 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.

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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US wheat futures plummeted on Friday night, triggered by the USDA’s latest US wheat planting forecasts. Heading into the report the trade was expecting to see US winter wheat acres cut by as much as 5% for the coming season, but were surprised by the USDA’s modest 1% reduction, and futures were sold off heavily as a result.

The USDA’s January report also contained a 1.8 million mt increase in global wheat production, thanks to a 2 million mt increase in Russian production which now sits at a record 85 million. This figure is up 17% from last year, and has resulted in the USDA increasing their forecast for Russian wheat exports to a massive 35 million mt.

A 3 ½ month high in the value of the Australian dollar has seen our currency continue to be one of the best performers against the US dollar in 2018. Over the past 6 weeks, our currency has rallied by more than 6%, as it looks to break above US$0.80 for the first time since September 2017. While a great deal of the strength in our currency comes on the back of US dollar weakness, favourable Australian retail sales data, 3 year highs in crude oil, and strength in the EURO are all offering support to our dollar. Looking at the week ahead, the Aussie dollar is likely to remain well supported by the latest round of Chinese economic data as well as Australian employment figured from December.

Figure 1: 2017-18 APW1 – Profarmer Best Bid – $/tonne

Despite the negative tone in both currency and futures markets, cash prices in South Australia have held relatively steady over the past week. APW1 bids in the Port Adelaide remain above $240/mt, while F1 barley has traded above $230/mt in the Port Adelaide and Port Lincoln zones.

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 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.

Freezing temperatures across the US Southern Plains have generated winter kill concerns for the US wheat crop in recent weeks, helping futures markets to rebound off their early December lows. While we will have to wait until the crop comes out of dormancy before we get a true picture of any damage, many regions continue to lack significant snow cover.

Other stories making the headlines to start 2018 include changes to US wheat acres, and the size of the short position held by the hedge funds, and a warmer Argentinean weather forecast. The USDA is likely to cut US wheat planting for 2018 in their January report, while the size of the short position held by the hedge funds continues to sit near record levels.

While the threat of winter kill in the US has offered some support to wheat futures markets, the 3.5 cent jump in the value of the Australian dollar has put pressure on local values. Our currency has bounced off its 6 month lows to trade above US$0.7850 last week, aided by strength in crude oil and iron ore, as well as weakness in the US dollar. Uncertainty over the effect of US tax reform on economic growth, and disappointing US jobs data have also been topics of discussion.

Figure 1: AUD/USD

Since the beginning of December, cash prices for wheat in most SA port zones have eased by around $10/mt. APW1 bids in Port Adelaide, Port Giles and Port Lincoln zones now sit near $240/mt, with a $15 to $20 spread for H2 in most zones. Feed barley values have been a little more resilient over the past month. F1 in Port Adelaide continues to trade in the mid $220/mt range, while a premium for F1 in Port Lincoln has been established.

Figure 2: SA Cash Prices – 2017/18

Both AGG Protect Wheat and AGG Protect Barley are currently 20% sold, and sitting near the top end of mandate. Early wheat sales have focused on capturing any premium for hard wheat in a number of zones, while feed barley sales have been made in the Port Lincoln and Port Adelaide zones. We will continue to monitor deliveries into the program, and look for market opportunities as they arise.

The charts below shows the sales progress against the mandate for AGG Protect programs.

Figure 3: AGG Protect Wheat – Sales Mandate

Figure 4: AGG Protect Barley – Sales Mandate

Estimated Programs Returns (EPRs) have recently been updated and are available below. You can also check the AGG Co-op website (www.aggcoop.com.au) for information about the progress of AGG Protect, as well as all the other AGG managed programs. All EPRs are quoted $/mt GST exclusive at Port and net of management fees and storage charges.

AGG Protect remains open for further deliveries / transfers until 31 January 2018.