Higher protein wheats are in relatively short supply in global markets this year. Within the US, the poor spring wheat crop, and small carryover stocks, has exacerbated the situation, and is limiting their exports of higher protein wheat this year.
We all know about high global wheat stocks, but we also know that half of the world’s inventories are quarantined within China, and that stocks have built rapidly within Russia, where logistics constraints will limit how much is available for world markets.
Of the remaining world stocks that are supposedly burdensome to global wheat prices, a higher percentage than normal has to be lower protein or lower quality wheats. Even here in Australia, a lot of our carryover stocks are likely to be lower protein, or lower quality, after last year’s wet season and wet harvest period.
The futures markets have been acknowledging the protein issue to some extent, but early premiums have contracted in the last couple of months. Now the markets seem to be remembering that higher protein wheats are not in huge supply, despite the headline global stock numbers that everyone talks about most of the time.
Here in Australia we are seeing the market begin to develop and begin chasing wheat as harvest spreads more widely across all states now. Early regions in Queensland, South Australia and Western Australia are very advanced, and are now being joined by regions that normally get going in November.
It is interesting to see the impact on prices. At this stage, wheat prices are rising where harvest is active, while remaining nominal elsewhere. At the same time as the APW base price is lifting, so too are protein premiums, pushing H1, H2 and APH2 prices up even faster.
As an example, wheat prices in the Pt Adelaide export zone are nominally based on $248 per tonne for APW, with a $10 per tonne premium for H2, and a further $10 per tonne premium for H1. These are the prices being posted at sites still not taking in many tonnes of wheat.
In the north of the state, where harvest is actually close to wrapping up, APW is priced at $260 per tonne port basis (a $12 per tonne premium), and the premium for H2 is $13 per tonne (not $10 per tonne) and the premium for H1 over APW is $35 per tonne, not $20 per tonne.
In northern NSW APW prices are running at $275 per tonne at Moree, which compares to $243 per tonne at Crystal Brook in South Australia. In the northern market though, APH2 is priced at $287.25 per tonne at Moree, which is only $10 per tonne more than H1 at Crystal Brook.
These are interesting price relativities. In the southern markets it almost looks like high protein wheats are being snapped up at a premium so that large volumes of ASW and APW can be blended up to hit higher protein levels for the export market.
In the northern markets the ability to be able to blend for export targets is more limited this year, with the tight supply simply leaving wheat prices high overall, without particularly large premiums for higher protein grades.
