Record large Australian and world wheat crops in 2016 are expected to keep grain prices under pressure well into 2017.
Global wheat prices have been steadily edging lower since 2012 on the back of four consecutive record large world wheat harvests. Over this four-year period global wheat stocks have swelled to record levels, pressuring United States wheat futures to the lowest level in a decade.
Bumper yields have shielded Australian farmers from the full impact of low international wheat prices, and more broadly, grain prices. Record yields are expected to see the 2016 Australian wheat crop top 33 million tonnes. This is about 9 million tonnes more than 2015, an increase of 38 per cent.
Australian wheat prices have tumbled around $50 to $60 a tonne in the past 12 months with the lower international prices.
Australia’s ASX wheat futures have traded in a $210 to $230 for the APW quality through the harvest window. A significant proportion of the Australian crop is expected to be ASW quality because of the soft finish. Cash markets for ASW quality have been reflecting a $15 to $20 discount to APW.
Eastern Australian wheat prices now seen has competitive into Asian and some Middle Eastern markets for the first time for a few years. Shipping stems for Newcastle, Port Kembla and Geelong are now reflecting this increased activity for January and February.
For the most part, farmers have remained reluctant sellers at the current low prices. Farmers were content in trucking grain into the local storage or securing in on farm storage while waiting for the New Year to assess the best marketing options for the massive crop.
Storage bags have proved popular among farmers on the back of the big crops and low prices. Agents have reported the strongest sales of grain ‘sausage’ bags in recent months as farmers gear up to handle the massive harvest.
East coast wheat prices have been edging higher through the harvest window as exporters bid-up to build coverage against upcoming shipments. But global prices remain lacklustre as overseas buyers eye-off large Australian and Argentine wheat crops.
As is usually the case, the extended price outlook for farmers is likely to hinge on weather in the key growing areas. Exporter wheat stocks are already heavy and this is expected to continue without a Northern Hemisphere winter wheat production problem.
United States farmers continue to shy away from wheat in favour of more profitable crops like corn and soybeans. Private forecasters expect US wheat plantings will decline by six per cent to the lowest level in close to 100 years. But smaller plantings along are not expected to un-nerve buyers given the already burdensome stock levels. US wheat ending stocks at the end of June 2017 projected to be around 31 million tonnes, which would be the most in three decades.
But the investor appetite to push world wheat prices below the decade lows is waning. Cheaper prices are buying solid export demand for US wheat, with shipments at the end of December more than a quarter larger than the same time last year. Drier than normal weather through the US winter wheat areas has traders cautious about 2017 yields.
Nonetheless, reasons for any significant rallies remain scarce without a significant global production hiccup.