Grain Market Update - Wheat (September 2024)
Article written by: Michael Jones, Grain Focus, Young
Wheat markets fell hard during July and August. Overseas wheat markets couldn’t seem to find the bottom, with sluggish importer demand and plentiful exporter availability as the northern hemisphere harvest wrapped up. Even though Russia suffered from drought conditions that reduced the size of their wheat harvest, they did what they usually do, that is cut prices and sell hard and fast to move it onto the market. Russia exported a record 5.5mmt of wheat in August and is expected to shift around 5mmt into the export market in September. Ukraine also seemed to be eager sellers, as the wheat market succumbed to the weight of supply. Meanwhile importers were happy to buy hand to mouth as prices went their way. The US had a good wheat harvest this year and chased the market down, in order to keep their crop moving out the door as well.
Europe had a lot of issues with their crop this year. A wet sowing plus wet and overcast growing season and harvest, resulted in a smaller crop with poorer quality. The market ignored this news during their harvest but now it is over, it finally seems to be getting some attention and prices have started to firm this month.
APW1 Multigrade wheat bids for the 2024/25 season were sitting at $328/mt Port Kembla at the time of writing. Working on the past 5-year price range, this is at a Decile 2 level. For many growers this price based on an average yield will be close to or below the cost of production.
The looming large crop in NSW is weighing on the local market as well. ABARES has the NSW wheat crop forecast at 11mmt vs 7mmt harvested last year. Some traders had their estimates as high as 13mmt for this year, but if a dry September eventuates, this will be unlikely. Wheat basis has been around +$20/mt over US prices. Last year the basis at this time of the year was closer to +$80/mt. Traders are saying they had a lot of export business booked with China leading into harvest last year, but Chinese buyers have been absent this year. After a big first half of the year of imports and increased domestic production, combined with less demand for flour, China is expected to import much less wheat in the coming months.
Here are some watch points for the next few months which may provide direction for the wheat market.
Upside potential
Russia should have moved their closest positioned stocks of wheat for export soon. Then they will need to draw on stocks further away from ports which will involve more in transport costs and maybe then higher priced offers in the market.
Turkey had banned wheat imports until 15th October to support local prices for their growers. Hopefully they will be back in the market next month and soak up some of the available wheat from the Black Sea countries.
Wheat markets are always influenced by other grains and especially corn, as both are used for stockfeed. US wheat usually sits at US$1.50/bu over US corn prices. Over the past 5 years, US corn prices have bottomed out between mid-August and mid-September, before rallying into mid-October and mid-November. The US will be harvesting a big corn crop in the coming months, but it’s hoped this trend holds true as higher corn prices would be supportive for wheat prices.
Downside potential
The sheer size of Australia’s east coast wheat crop is going to take a while for buyers to digest. It is expected that in the northern ports, chickpeas (at approx. $1,000/mt) will be the first grain to be shipped. In the south, canola is looking to have the most export demand and will go out first. If exporters do not get a lot more wheat sales booked soon, they may be reluctant to accumulate wheat at harvest, preferring growers to hold it until they are ready to buy. This could pressure local wheat prices and result in a weakening basis. That is, the local market could fall even if overseas markets do not.
If China stays out of the wheat market and their economy remains in the doldrums, the major exporting countries will be forced to continue to fight for any demand that arises from other importing countries.
The information contained in this article is given for the purpose of providing general information only.