Major factors likely to dictate wheat prices this season

Pete Rees of Plum Grove, discusses current wheat market and factors dictating wheat prices

Major factors likely to dictate wheat prices this season Major factors likely to dictate wheat prices this season Major factors likely to dictate wheat prices this season Major factors likely to dictate wheat prices this season Major factors likely to dictate wheat prices this season

Plum Grove

As a grain marketer with links throughout Australia and the globe, Plum Grove is well placed to comment on current market trends.

To hear what has been going on in wheat markets and to discuss the major factors likely to dictate our wheat prices this season, we spoke with Pete Rees, Plum Grove's Grower and Consultant Relationship Manager.

Drought bites hard

In Australia this year the wheat market has been completely dominated by the East Coast drought.  "The impacts on pricing were huge", said Pete, "For example, in December last year, the APW1 price was $298 USD FOB Kwinana versus Black Sea $230 USD FOB."

As a result, Indonesian millers could import Russian wheat around $50 USD/t cheaper than the Aussie comparison. "This has seen Indonesian imports of Australian wheat fall over 80% in two years, from 5mmt to 2.3mmt last year with a forecast of less than 1mmt this year," commented Mr Rees.

The huge drop in supply of Australian grain from the drought has the US Department of Agriculture forecasting the lowest Australian wheat exports in nearly 50 years.

Despite this difficult export market, Plum Grove is on track to achieve 50% market share in Indonesian wheat exports and nearly 20% of wheat exports to Japan and Korea this season. "This is due to our focus on strong relationships in export markets and our unique business model that connects growers to major consumers of Aussie wheat."

Looking ahead

We see the next season dominated by big supplies and sluggish demand for most agricultural commodities.  The global wheat crop is estimated to grow 38.5mmmt from 2018/19, with 85% of that growth coming from improvements in the major exporters including ourselves, the Black Sea region, the USA and the EU.

Demand is growing slower, up 21.6mmt for the year, which means wheat stocks are forecast to grow in 2019/20 and forecast world stocks to use in wheat are the highest in 40 years.

Russia, the world price benchmark these days, is on track to have its second largest wheat crop ever and prices there are around $190 USD FOB.  To compete with this, WA APW1 prices to the farmer would have about $30/t downside.

Rainfall across Eastern Australia in April/May has hopefully decreased the chances of another severe drought, removing the need to tranship grain from SA and WA next season.

If there are no production upsets in the northern hemisphere, world prices are likely to remain low and if we need to grow exports, we will have to meet those prices to buy back demand for milling wheats.   While it's still quite dry in WA, world markets are yet to sit up and take notice, given they got by well without us last year. 

The obvious exception to this is Noodle wheat.  While Japan and Korea can adjust their blend based on seasonal conditions, Western Australia currently has a monopoly on supply of these products.  Despite a very high carry out of ANW from a big season last year, the markets will be watching our crop conditions closely.

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Plum Grove is a Western Australian company with strong ties to Australia’s major wheat customers. For 15 years Plum Grove has helped connect Australian growers to key Asian markets.

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