THE WHEAT market has continued to slide south for Australian producers heading close to harvest, driven by a sky-high Australian dollar and a strong northern hemisphere harvest that continues to come in under perfect conditions.
Such are the conditions overseas that the production estimates from key forecasting agencies such as the US Department of Agriculture (USDA) have again been revised upwards.
Futures levels on the Chicago Board of Trade (CBOT) have dropped to close to three-year lows, and are less than half of quotes earlier in the year.
CBOT December '09 futures were at US451 cents a bushel on Tuesday.
Australian Stock Exchange (ASX) January 2010 futures had a settlement bid of $214 a tonne – meaning an upcountry price below $200/t for many growers.
This ties in with declining forward contract quotes for new season crops from many marketers, whose port quotes are dropping towards $200/t.
ABB’s APW price at Portland, Victoria, on Tuesday was $204/t, while its Esperance, WA quote was $208/t.
The Australian dollar was trading at US85.7c on Tuesday, meaning there was no relief from the low prices for Aussie growers on the currencies front, which is often the case when world prices decline.
Last Friday the USDA released its estimates, which went up slightly less than some in the market predicted, moving its world wheat production up by three million tonnes on the back of improved estimates for the EU and Russia.
On top of this, the good weather has meant there are few quality concerns.
Rabobank senior analyst Wayne Gordon said that despite a floor being found in global prices for the moment, there could be a further drop in the coming months.
"The current outlook suggests further easing of wheat prices in the second half of 2009, with a seasonal low likely to be set in October/November as the northern hemisphere grains production comes onto the market," he said.
In addition, there appears to be little cause for optimism for wheat prices into 2010 with weaker short-term fundamentals set to continue as the dominant factors in the market.
Mr Gordon said the high Aussie dollar was another roadblock.
"Comparatively the US and Canadian dollar are relatively low, making them more competitive in the market place," he said.
The only reason to reassess a bear wheat market in the short-term, according to Mr Gordon, would be a major southern hemisphere production issue, with world stock levels expected to build for the second consecutive season.
ProFarmer managing director Richard Koch said that while long-term issues of food security and declining arable land meant the future should be bright for food producers, it did not alter the bearish situation confronting growers at the moment.
AWB this week released a new season estimated pool return of $263/t down the east coast and $255/t on the west coast for APW wheat.
AWB general manager of commodities, Mitch Morison, concurred with the bearish sentiments, saying that export factors would be the key driver on prices.
"Australia is expected to have a sizeable wheat export program this year, especially from Western Australia and South Australia," Mr Morison said.
"Crops are under more pressure from dry conditions in the eastern states, but this doesn’t change the reality that grower returns will be set by export prices, so the strong Australian dollar is not helpful.
"The commodity itself trades in US dollars and world prices have fallen, which means Australian farmers see a double effect."
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