Global wheat prices have peaked, with reports saying Algeria has paid US$15 a tonne less for its latest tender compared to prices paid in January.
Exports appear to be still flowing freely from the Black Sea region, while the pace has been slow all year from the EU and the US. This has pressured EU wheat prices in recent weeks, and every time US futures rally it seems to increase the risk of US wheat becoming uncompetitive.
Not helping is the delay in getting export sales data from the USDA. Last week they released export sales numbers for the week ending January 3 and they were very weak. There has been talk of better export sales activity since then, but with no way of confirming that, the market is flying blind.
For the week ending December 18, CBOT March futures were down A$8.60 a tonne. The cash market across Australia was down by a similar amount in nearly all port zones.
In Western Australia that has pushed the APW price down to its lowest level since late November, and in the Port Adelaide zone prices are down to their lowest since mid September last year. In part this is simply pushing prices down to export parity in those port zones in South Australia and WA that have an exportable surplus.
In turn, prices in eastern Australia have been able to fall without upsetting the premium they hold over prices from western origins. For example, Newcastle port based prices continue to hold an $80 a tonne premium over Port Adelaide zone prices, which should keep some competitive tension in the market between domestic demand into NSW and export demand.
Port Lincoln zone prices are also about $20 a tonne under Kwinana prices, which is about right for a normal year with exports running smoothly. However, against CBOT futures, prices in the Port Lincoln and Kwinana zones still appear to be higher than seen in recent years. But, it does not seem to be impeding the flow of exports, particularly out of WA.
The balance sheet for eastern Australia remains tight, even though supplies coming forward are more than covering current demand. The sorghum crop has been hit hard by the dry conditions, and now we are seeing summer rainfall deficits putting the winter cropping program at risk due to a lack of stored moisture.
In terms of grain demand through the rest of 2019, what happens to the northern cropping season will be irrelevant. More of an issue will be availability of grain out of SA and WA to fill the supply gap. NSW prices will have to remain high to make sure grain continues to flow from west to east, and so export volumes are not overdone this year.
