AWB’s estimated pool return for benchmark APW wheat in the eastern pool is down A$10 a tonne to A$352 a tonne, with FED1 also down A$10 to A$267 a tonne. In AWB’s western pool APW wheat is unchanged at A$380 a tonne while ANW1 noodle wheat is down A$25 to A$443 a tonne (FOB, excl. GST).
Mitch Morison, AWB General Manager Commodities, said the world wheat and corn markets had declined sharply this week on the back of improved weather in key Northern Hemisphere production regions.
“Wheat and corn prices are linked in world markets with corn normally setting the direction, so with better weather forecast in key wheat and corn regions of the United States, rain in prospect for dry parts of Europe and China, and talk of better exportable surpluses from the Black Sea region, the market had nowhere to go but down.
“Since our last EPR revision we have seen just how strong corn fundamentals can be with the nearby corn futures contract trading above wheat. While this is supportive for Australian feed wheat values, there are significant quantities of feed wheat available and despite the wide price spread to corn, consumers are not switching significant feed grain demand to wheat. We have used recent commodity price rallies to add another 15% of price cover to our pools and will look to continue building price cover when opportunities present.
“In the same period the Australian dollar has again hit post-float highs and while we had been actively increasing currency hedge cover in advance of the rally, the pools still have some currency exposure. We have a heavily optionalized hedge book and the ability to participate if the exchange rate falls.
“Within our overall EPR grade spreads there have been a range of changes that reflect our latest estimates on where we see different grades of wheat trading after taking into account sales already booked. For example, in Western Australia APW milling wheat quality is currently substituting hard wheat demand and hard wheat price premiums are eroding quickly. Noodle wheat in western Australia has continued to suffer from willingness in the trade to sell at smaller premiums above APW and again more broadly firming APW prices.
“For eastern Australia ASW is under pressure due to the lower quality profile this year, combined with lower demand out of Middle Eastern markets generally. We are maximizing blending opportunities and passing these benefits back to the pool.
“Shipping remains a challenge and will remain so for months to come. A lot of grain is moving on road transport, which means higher costs and more difficulty with executing exports. While we are recovering as much of this added cost as possible through sales prices, it is important to note that in time the additional costs may affect final net pool returns.
“The continued outlook for the international wheat market is one of volatility, as northern hemisphere weather developments during May and June will be crucial to crop production potential and the overall world supply picture.”
