Cash prices in the Geraldton zone with a “very” dry start

Well to start with we are not seeing a lot of crop out of the ground. This is the greatest risk so the focus needs to be on production first. If you do need to seriously consider washing out a contract we do recommend getting the conversation started now not closer to harvest. It pays to fully understand the process and the options available.

Buyer demand has increased prices in WA significantly throughout June. Unfortunately growers in the Geraldton and Kwinana zones are unable to take advantage of this due to production issues.

Chart 1: 2017/2018 Wheat basis for APW1 prices in Ger (AUD/t)

This chart shows how the current dry conditions in WA have pushed wheat basis (buyer demand) to new highs in recent weeks. The increase is substantial and it shows that buyers are getting nervous and know that they need to increase prices if they want anyone to commit to selling. It is important to remember they do all have long term commitments for shipping out of WA.

We certainly think it is prudent to do nothing in most circumstances in the Geraldton zone right now, but please remember that every circumstance is different. If Ten Tigers knows your business we can give good advice.

Minneapolis (MBOT) December is trading around a 240 USc/bu (30^th June) premium (AUD$100/t+) to the Chicago December (CBOT) equivalent. This premium is big on account of a drought in large parts of the Dakotas and Minnesota. The average spread for this December pair (since 1991) is about 34 USc/bu (AUD$16/t). The premium was last around these levels in 2011.

There is definitely potential for this spread to grow further which is a good sign for higher protein wheat towards harvest this year. We are targeting buyers to increase spreads for H2/H1. These are significantly different between buyers so be aware that base prices on text message that look good are not necessarily best for your business.

International wheat values at tender are still not rallying much with Romania and Ukraine still supplying to GASC in Egypt. Values are as low as AUD$275/t CnF. Our local cash price action is purely due to a lack of rainfall and therefore lowering production potential.

Chart 2: MATIF Canola futures v NONGM cash price Ger (AUD/t)

Canola

Local WA basis for Non GM & GM has also gained. The continued dry conditions in the north and east of the state have been worrying traders (and Ten Tigers clients!). There have been numerous grower washouts of canola contracts which impacts on market liquidity as buyers try to determine replacement costs of grain.
Values do look like they are settling internationally. The weather premium for Soybeans and Canola in the US and Canada is disappearing as supply looks reasonable. The local focus in WA though is different and is firmly on supply. This is keeping basis levels attractive for Canola and should do for a while yet.

Barley

There is not much liquidity in the barley market at the best of times. At the moment we believe marketers should be starting to get a little concerned about potential malt production in WA this year. This could well push malt premiums higher. There is limited Malt opportunity in Geraldton with only La Trobe and Scope likely to get segregation this year.

Disclaimer

Any views expressed in this article are those of Ten Tigers Consulting. The information and opinions within this material are of general nature only and do not take into account the particular needs or individual circumstances of investors. The material does not constitute any investment recommendation or advice nor does it constitute legal or taxation advice. Ten Tigers Consulting (ABN 20 194 919 017) does not give any warranty, whether express or implied, as to the accuracy, reliability or otherwise of the information. Authorisation for derivatives advice (futures and foreign exchange) held by: Chris Tonkin, Authorised Representative No 290288 with Australian Financial Services License No. 329063 held by Ten Tigers Grain Marketing Pty Ltd. (ABN 45 132 654 472).

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