LAST WEEK’S pivotal January USDA reports once again proved a catalyst for volatility on global grain markets, with corn futures dropping by the maximum limit of US40 cents a bushel with the Chicago Board of Trade.
It is the sixth year in a row that the January USDA crop production and stocks report sparked a limit move in grain futures.
However, the pain has not been as great in Australia, with improving local basis levels accounting for some of the loss.
There have been falls of around five dollars a tonne in Australian values for APW wheat since the report came out, when a straight conversion from US futures values would have seen a drop in excess of $10/t.
CBH head of marketing Tom Puddy said the stronger basis reflected marketers trying to meet orders, and short term premiums emerging.
He also said that farmers were hanging onto their grain meaning there was a short-term supply issue, even though Australia is awash with grain.
However, he had a stark message for those warehousing grain in the hope of further price gains.
“There is little way prices can go up the way things are at present, but there is scope for downside of $20-30/t.
“With what we have seen in the past week, Australian wheat will be uncompetitive and it will only be those markets that have a preference for Australian grain using it, such as the noodle makers in Asia.”
Steve Powell, MarketCheck grain analyst was more upbeat.
“Our supply of feed wheat is still fairly cheap compared to feed wheat internationally, against things like US corn futures.
“This support for feed is providing a floor for the lower quality milling wheats, we’re basically seeing GP and ASW wheat traded as a quality feed grain.
“Although there is a lot of ASW-type wheat across the world, we feel corn is still expensive in relation to wheat, so there is room for Australian basis to increase in this sector.”
However, he said Australian growers would not be completely unscathed if world values continued to drop.
“Basis has strengthened and taken up the slack from the fall in US futures, but it can only insulate us so far – we are still competing against rival exports.”
He said while Australian selling remained slow, there had been some interest in selling feed wheat.
“The feed price has actually risen since harvest, the trade has had to strengthen their prices to attract grain.”
And he said traders continued to find a home for the grain.
“I have heard South Korea and the Philippines both tendered for a vessel of wheat to be used in feed mills from Australia in the past fortnight.”
Mr Puddy’s colleague Scott Haughton, a grain trader based in Melbourne, said the USDA report had caught the trade on the hop.
“The actual report itself wasn’t that bearish, it still maintained the tight corn stocks, but the market was expecting a more bullish report and had factored that in to the prices.
“Speculators had been moving prices up, and all of a sudden the report has gone the other way to what they had been expecting and they are out of the money.”
“This USDA report, which contains so much data, just has a continued habit of throwing curveballs to the market.”
In terms of fundamental issues, he said the continued dry in South America had been allayed somewhat by rain last week, however, it was not significant enough to ensure crops will meet early season expectations.
He agreed with Mr Puddy that Australian farmers were proving reluctant sellers, which had made filling orders difficult.
“There are marketers that have slots on the shipping stem and they need to own the grain to get it to work, so that is providing short term strength in the various port zones.”
AWB accumulation manager Jon White said his company’s values for lower protein ASW wheat had increased, in spite of the USDA findings.
ASW has increased $2 – 6/t.
“We have increased the EPRs for ASW in all pools as current values remain very well supported due to excellent export demand and firming international values for lower protein wheat,” Mr White said.
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