Where to for Wheat in 2006? Will wheat prices
rebound by $30 - $40/t for the 2006 harvest? The answer
is they already have (or are well on the way). What we
don’t know is whether those higher prices will hold.
1. Today AWB are paying $148.80/t Pt Adelaide on
their MV contracts for 2005/06. Their 2006/07 MV
prices is $179.85/t. That’s a $31.05/t improvement.
2. Today, March 2006 futures are worth $169.76/t. On a
“December Equivalent” (ie after taking off 14
USc/bu for the spread between December and March
futures at expiry of the Dec 05 contract), current
harvest US futures are valued at A$162.76/t. Dec
2006 futures are valued at $189.28/t. This is a lift of
$26.52/t from the current season to the new 2006/07
season.
3. Last year Dec 06 Swaps were trading at $171/t on Jan
4th 2005. This year we have a price of 186/t for the
same swap. Although only a $15 improvement, it is
another indicator that wheat prices for 2006 are able
to be locked in at higher levels than for the harvest we
are just finishing.
Globally supplies of wheat seem to be OK, although we
are still consuming more than we produce, with this year
being the fifth year out of the last 6 that we have run a
global deficit. What is not apparent in the aggregate
figures, is that the supply of good milling wheat is tight.
The winter wheat crop in the US is not as good as it was
this time last year. Southern areas, (where not a lot of
wheat is actually grown) is dry, and more of the crop
appears to be losing its snow cover and becoming
vulnerable to cold damage down the track. We also had a
cold scare for the Chinese crop, and we already know that
acreage is down in the Ukraine and Southern Russia. (The
Ukraine crop could be as low as 11 million tonnes against
19 mill tonnes last year).
There is also a view that the Argentine crop will basically
stay in South America this year, limiting competition from
that exporter in other markets during 2006.
It is not that easy to see where total wheat supplies, or in
particular supplies of good milling wheat, will be
replenished from. If China has to lift its imports to cover
their own crop, it will add a further parameter to the
balance.
Right now we seem to be building a degree of uncertainty
about wheat supplies in 2006/07. This uncertainty will
reflect in wheat futures prices until the northern
hemisphere crop becomes more secure, often not until
around May. That means that we should see volatility in
wheat prices, with good forward selling opportunities
right through from now until into May.
In the end prices next December will be driven by what
actually happens. If production is down gains made in
the early part of the year may be retained. If production
seems to be meeting demand for imports, then prices will
ease.
The best way of guaranteeing a year on year price rise for
wheat in 2006/07 will be to forward sell at least a part of
expected production using marketing tools that do not
commit you to delivery, and that can be easily washed out
in the event of unexpected price moves or production here
in Australia.
rebound by $30 - $40/t for the 2006 harvest? The answer
is they already have (or are well on the way). What we
don’t know is whether those higher prices will hold.
1. Today AWB are paying $148.80/t Pt Adelaide on
their MV contracts for 2005/06. Their 2006/07 MV
prices is $179.85/t. That’s a $31.05/t improvement.
2. Today, March 2006 futures are worth $169.76/t. On a
“December Equivalent” (ie after taking off 14
USc/bu for the spread between December and March
futures at expiry of the Dec 05 contract), current
harvest US futures are valued at A$162.76/t. Dec
2006 futures are valued at $189.28/t. This is a lift of
$26.52/t from the current season to the new 2006/07
season.
3. Last year Dec 06 Swaps were trading at $171/t on Jan
4th 2005. This year we have a price of 186/t for the
same swap. Although only a $15 improvement, it is
another indicator that wheat prices for 2006 are able
to be locked in at higher levels than for the harvest we
are just finishing.
Globally supplies of wheat seem to be OK, although we
are still consuming more than we produce, with this year
being the fifth year out of the last 6 that we have run a
global deficit. What is not apparent in the aggregate
figures, is that the supply of good milling wheat is tight.
The winter wheat crop in the US is not as good as it was
this time last year. Southern areas, (where not a lot of
wheat is actually grown) is dry, and more of the crop
appears to be losing its snow cover and becoming
vulnerable to cold damage down the track. We also had a
cold scare for the Chinese crop, and we already know that
acreage is down in the Ukraine and Southern Russia. (The
Ukraine crop could be as low as 11 million tonnes against
19 mill tonnes last year).
There is also a view that the Argentine crop will basically
stay in South America this year, limiting competition from
that exporter in other markets during 2006.
It is not that easy to see where total wheat supplies, or in
particular supplies of good milling wheat, will be
replenished from. If China has to lift its imports to cover
their own crop, it will add a further parameter to the
balance.
Right now we seem to be building a degree of uncertainty
about wheat supplies in 2006/07. This uncertainty will
reflect in wheat futures prices until the northern
hemisphere crop becomes more secure, often not until
around May. That means that we should see volatility in
wheat prices, with good forward selling opportunities
right through from now until into May.
In the end prices next December will be driven by what
actually happens. If production is down gains made in
the early part of the year may be retained. If production
seems to be meeting demand for imports, then prices will
ease.
The best way of guaranteeing a year on year price rise for
wheat in 2006/07 will be to forward sell at least a part of
expected production using marketing tools that do not
commit you to delivery, and that can be easily washed out
in the event of unexpected price moves or production here
in Australia.
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