SA Wheat Market & Collaborative Export Program Update – 20/1/25

SUMMARY

After spending the majority of December and early January with a negative narrative, wheat has recently caught a bid, in both futures and cash markets up around 10 + from the lows with Corn markets underpinning the strength.

• USDA January Wasde saw a surprisingly large cut to 24/25 US corn yield, resulting in a 7 mmt + cut to the crop and a significant tightening of stocks to use.
• Wheat is still suffering from a negative demand profile, with China missing and other large buyers slow on purchases, but improvement is noted recently, including significant feed wheat demand – A flow on from Corn price.
• USD strength placing pressure on US wheat to buy exports vs other origins, which is an element of pressure for futures markets.
• USD strength is also diluting buying power of importing countries, which is holding back purchasing / demand.
• Aggressive selling and export pace is beginning to slow down in Russia, which is improving Australia’s share of global export business and giving us much needed export buying for March / April
• Australian and Argentinian wheat crop estimates are creeping higher as harvest wraps up, with Australia moving to 34 mmt plus making it the 3rd  largest production on record.
• Ocean freight values have dropped sharply, by more than 10% to real record low levels. Australian freights have been relatively cheap vs Northern Hem also.

The market has moved through a lot of the short term negative demand talk that had the market under pressure and is now underpinned by Corn prices which are starting to shift significant demand into feed wheat at current prices. This demand is  predominantly in Asia and Australia is getting the majority of the business today with US competitive waning.

The recent market has been all about corn, but wheat has its own story continuing and that will play out with threats to the poorly established Northern Hemisphere crops as they begin to emerge from Winter in Feb March.

Russia

• Russian crops suffered from dry start and poor establishment. Wheat has gone into dormancy in poor condition making it more susceptible to winter kill. Russian new crop estimates are sitting at 78-80 mmt, which is smaller than last year’s poor crop and 5-7 mmt below 5 year average.
• Russian carry out stocks will draw down around 3 mmt over this season to tightest in 5 years. This will reduce Russian export capability by another 3 mmt vs this year for a total 8-10 mmt export cut year on year in 25/26 season.
• Early season export pace was very impressive, with growers selling aggressively to bank money and capitalise on very high interest rates and avoid getting caught by higher govt export taxes and possible export quota limitations / export bans.
• Recently, we have seen exports slow right down and far less aggression on price from the Russians. This is already noticeable in markets, with more export demand moving to Australian and Argentinian sellers and this trend is likely to continue and possibly coincide with a covering of demand by a short consumer who has been waiting too long to enter the market. 

The market isn’t really pricing Russian issues today.

Outside of Russia, Eastern Ukraine is under similar poor establishment circumstances and the US has turned dry again after a very good November which improved the Winter crop situation.

EU crops are also imperfect, with French the main exporter seeing late sowing and poor early conditions. But note also a higher estimated wheat planted acreage.

For Canada, Australia and Argentina it is way too early to assess new crop prospects, although Australia does have some moisture profile in some more variable parts of the cropping zones.

China Wheat

• Improved wheat production, local price protection, poor demand and high stocks has seen the Chinese slow buyers.
• We estimate China purchases of approximately 1 mmt + vs 4-5 mmt by this point of the season, pointing to lower demand and / or poor demand coverage.
• Chinese New Year is early this year, falling on 29th Jan. This will likely delay any major Chinese purchases until mid – late Feb
• We have seen some purchases rolled back from March – April recently, which isn’t abnormal and could be associated with Chinese New Year holidays, but also isn’t a great sign for demand.
• Interestingly Chinese barley demand continues to impress – Quite the opposite of wheat.

India

• Wheat / other grains / pulses market tightness in India continues, with trade ownership limitations put in place by govt to stop traders hoarding wheat. 
• Government reserve sales auctions are 100% subscribed, with prices continuing to run hot. 
•  Rainfall accumulations and satellite imagery are showing some signs of dryness, after a decent monsoon and start to the season
• India crop is made by the finish, so Jan / Feb / March weather including extreme heat will be closely watched and any significant deterioration will see a likely import policy change and significant wheat imports are possible.
• We are seeing container demand, but no bulk as we will need to see changes in import tariff legislation to trigger that larger volume.

Corn

• US crop yields were cut by 3.8 bu/ac, with an historically high post harvest yield cut lowering production by around 7 mmt.
• US corn use was cut by around 2 mmt, with the majority cut out of feeding and implied higher wheat feeding (HRW WHEAT) which is supportive wheat exports and futures
• US corn ending stocks lower by 5 mmt with stocks to use tightened by 1.26%, which will make the world more reliant on South American weather
• Corn had been very competitive with feed wheat into Asian destination, but we have seen this shift quickly and a significant amount of feed wheat business has been done – Primarily from Australia. The lower end of the market in SFW / ASW has seen good demand and support, which underpins all wheat demand and base price.

Australia

• Crop is larger than expectations, with all states coming in a bit better than initial market estimates making a 34 mmt + crop, with per state production heavily skewed to WA and NSW/QLD.
• Grower selling has been slow. There is a difference between the states, but generally WA is best sold, NSW following and Vic/SA well behind. 
• Slow grower selling has resulted in higher prices / negative export margins in SA and Vic in the lead up to harvest / selling period, which has resulted in a poor export book and resulting low liquidity and lack of buyers in many areas.
• Frost concerns in NSW were completely overblown on a state / national level and have had limited lasting market effect.
• Lower grade wheat in the East was an overestimated issue and is now tightly held by grower, with the domestic consumer short in many areas. Significant new feed wheat export business has been booked on the back of corn price moves, which is bolstering low grade bids and forcing the consumer to cover.

Per state quality is vastly different to last season, with WA significant softer / lower quality. SA is skewed to hard wheat, but still with some lower pro despite tough season and poor yields. 

Vic showing a good spread of H2, APW and ASW, along with SFW quality which I would describe pretty normal. NSW has a good spread, but notably the Riverina has a lot of hard wheat and more limited low pro for non irrigated crops. Central and Northern NSW showing a good spread of all quality, including APH2 – As you would expect in such a large, even record (regionally) production environment.

Locally, we could feel the poor export demand over the last months, with stem available and generally the market being poorly sold.  Australia was missing China especially, who have been big early buyers in the last few years.

We can now feel that demand piece begin to shift, with Black Sea export pace and prices starting to shift business towards Australia, along with Argentinian price aggression starting to slow down. 

This is evident with some Middle East and African demand starting to work from Australia, but also in Asia where buyers are showing more demand and are just a little keener to buy.

Also important is the Corn price driven shift into wheat feeding and resultant export demand into Thailand, Korea and Vietnam we are seeing. 

Moving into Q1/Q2 2025, we will run the clock on many of the potential bullish stories we have mentioned and that time will bring volatility 

Over the Feb/March period, we will see Black Sea and European crops exit dormancy and enter the Northern Hemisphere weather market. While at the same time the market will be dealing with Russian export limitations, quotas, taxes or bans and will need to re-allocate exports to other origins, including Australia. This will be the finalisation of the switching we are beginning to see now.

The important Indian crop will be in the finishing stages, which is when the crop is made or broken and we will see if the market can get through to the new crop without needing imports.

The other thing that needs to play out is the global demand story, where we will see if recent lower demand is true demand destruction for wheat (which is rare), or the market running short on purchases given the price action and their own fiscal situation or any number of other reasons.

I don’t think the fund short or global consumer is prepared to deal with a Russian crop problem or severe Russian export limitation etc on price today. The market perception that Russian export losses can be easily covered elsewhere without significant price action also seems strange. It is probably true though, that the consumer can cover their risk well using futures and options today and sort out the physical short later. This itself will bring significant volatility if/when the time does come.

Improvement in the Russian new crop and continued lack of engagement from China are the big bearish flags to watch globally. Along with a rally in AUD/USD for local prices, which will be highly Trump dependent.

Expect to see an increase in volatility from Trump, starting tonight..

Flexi Grain’s Collaborative Export Program – Closing Soon 

This program will export wheat and barley cargoes ex Lucky Bay and Wallaroo in March/April 2025. Participating growers will be fully exposed to export grain values and movements in global wheat and barley prices post harvest. Final Pool returns will be subject to future global market movements and the costs of holding and selling grain. Flexi Grain is actively managing a currency hedging strategy over accumulated grain to manage the risk of AUD currency appreciation. 

Accepted Grades  – All grades of wheat and barley* 

Participating Sites – All T-Ports & Viterra Sites*

*subject to confirmation 

Collaborative Export Program – Harvest Advance Values for week commencing 20/1/25*

*60% Harvest Advance advanced 5 days end of week of transfer. Harvest advance values are based on average weekly prevailing cash values. Note, final pool returns subject to future market movement and costs associated with holding and selling grain. Deferred payment options available.

Collaborative Export Program – Payment Structure Options

Call Sam Grieve for more details.  Don’t miss the boat.