Australian wheat to dominate Asian market in H1 2017 on competitive pricing: traders

18.01.2017

Australian wheat is expected to dominate Asia’s market in the first half of 2017, as a large export surplus will pressure prices to be more competitive and attract buyers, traders said late last week.

The world’s fourth-largest wheat exporter is set to produce a record harvest of around 33 million mt for the 2016-2017 season (October-September), tipping record harvest of about 29.9 million mt set five years ago.

Given higher production, exportable volume from Australia is estimated at 24.5 million mt for the 2016-2017 season, up 52.2% from the 2015-2016 season, which would exert tremendous pressure on producers to find outlets, according to traders.

“Australian wheat sellers will have whole year round to clear its big crop, and quickly too, to avoid head-on-head bumps with other wheat origins, particularly Black Sea’s new crop in Q2,” commented a Singapore-based trader.

Already, prices were lower for new crop in Australia, with the export value of Australian Premium White wheat with minimum 10.5% protein, transacted at $199/mt FOB Kwinana on January 12, down from $212-$213/mt FOB a year ago, according to S&P Global Platts data.

Lower protein wheat, Australian Standard White with minimum 9% protein, was trading at around $186/mt FOB Kwinana, or about $200/mt CFR Indonesia, which was $5-$10/mt below the value of Black Sea 11.5% protein wheat.

ASW is typically priced above Black Sea wheat. Over the 2015-2016 season, ASW was at a premium of $10-$15/mt over Black Sea wheat.

Apart from an ample supply of ASW, the flip in the relative value between ASW and Black Sea wheat also stemmed from a rise in delivered prices of Black Sea wheat.

“Higher shipping rates in November and [the] reluctance of farmers to sell, contributed to the higher Black Sea value to Southeast Asia,” commented a trader.

With the current ASW prices, there is “really no incentive” for buyers to switch to other origins, said millers and traders.

Over November to January, more than 800,000 mt of ASW for February-April shipment were sold, with Southeast Asia being the predominant destination, according to Platts data.

“With such a big crop this year, Australian exporters have had to buy back demand from the Black Sea and price to be more competitive in global markets,” said James Foulsham, CBH’s wheat trading manager in its weekly comment on January 13. CBH is the largest grain seller in Western Australia, the country’s largest wheat exporter state.

An ample global wheat supply, with the world’s production expected to rise 2.34% from last year’s record harvest to 752.7 million mt, have added further downward pressure to the market.

Major exporting countries — Black Sea, US and Canada — are also sitting on large volumes of exportable wheat because of a big crop. This would imply tougher competition among major exporters, who would continue to eye the Asian market due to consumption growth.

Platts assessed APW at $201/mt FOB Western Australia on January 13, while Russian 12.5% was assessed at $183/mt FOB Black Sea.


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