Australian wheat export price likely to be pressured by high output, stocks: Tegel GM

05.08.2016

Australian wheat export price is expected to be under pressure due to unexpectedly high stocks and a record harvest in the October 2016-September 2017 season, John Russell, general manager, Tegel Foods Ltd. NZ, said Wednesday, at the Southeast Asia-US Agricultural Cooperators conference held at Cebu, the Philippines, over July 31-August 3.

Australian wheat production could reach 29 million mt owing to “unusual excellent soil moisture and early crop rainfall across major wheat belt,” leading to the 2016 grain crop having the best start in 15 years, he said.

His estimate was higher than the latest forecast released by the National Australia bank that forecast production at 27.8 million mt, while the recent USDA report put it at 26 million mt.

The high production and lower exports because of low international prices, led to a build of high stocks on the east coast, which was unprecedented, Russell said.

Australian exports needed to be increased to 21.6 million mt, higher than USDA’s figure of 17.5 million mt, or risk high carry-over stocks of 8.5 million mt, based on an export of 17.7 million mt in 2016-2017.

There was not enough farm storage for such high stocks, he added. As a result, spot prices for August-December will be under pressure from the need to export more wheat given the stagnant domestic demand, he said.

Moreover, there was competition from cheaper wheat from the US and the EU that could erode Australian market share, he said.

Australian wheat prices were likely to decline as the export parity to US wheat, based on US CBOT values, at $170/mt was not acceptable to buyers, he added.

An Australian trader Thursday estimated farm storage capacity in New South Wales at around 6 million mt and a little higher by using silo bags. He did not think it was possible to export 21 million mt of wheat from Australia, as the average export volume was typically around 17 million mt.

According to S&P Global Platts data, APW from last year’s season or old crop was being offered at $210-212/mt FOB WA, but this was still at least $5-6/mt higher than what major millers in southeast Asia are willing to accept.

Most traders do not expect old crop pricing to be aggressive considering that it is the end of the marketing season, and there is no dearth of shipping slots.

“We need to pay farmers at least $10-20/mt higher than what is expected by buyers in order to get a decent volume from them. And a decent volume is about 100-500 mt, so we need about 100 farmers to meet one typical Southeast Asian miller’s order of 10,000-15,000 mt and still incur losses by bidding for a shipping slot for October, so no one will sell aggressively the old crop,” an Australian trader said Thursday.

In 2014-2015, Australian exporters suffered a loss of A$30/mt ($22.80/mt) as they tried to avoid a shipping slot penalty, Russell said, adding that he expected a more logical and consistent pricing going forward as the port slot auction system was being replaced by long-term agreements.

Western Australia’s major bulk handler CBH has have rolled out a five-year long-term agreement for the 2015-2016 wheat marketing season.

East Coast major bulk handler GrainCorp has also implemented a five-year long-term agreement to allocate shipping slots, while South Australia will roll out a similar system in the 2016-2017 season.


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