What Has Played Out Since Our Last Update on the 18th Dec 2023

Happy New Year.

Since our last Wheat Update (below) which went out on the 18th of December, we have seen the following play out and the risk of carrying grain in Victoria has increased.

  • Currency opportunities entering the market on recent sell off
  • Victorian wheat crop was bigger than expected which will increase the carry out position
  • Local prices have soften with a large portion of the crop remaining unsold
  • Significant rain events across VIC & NSW builds confidence for 2024/25 crop

The Victorian crop is much bigger than expected, 500kmt -1mmt, with feedback coming in that this year’s wheat crop is better than last. We had last year at 6.1mmt, and a forecast of 5mmt for this year, so that adds +1mmt to an already heavy carryout, which is heavily unsold (It’s our view that 60% of the 2023/24 wheat crop is unsold). 

The solution for Victorian wheat supplies is to increase exports to limit burdensome ending stocks. But we are already well into the shipping season and Victorian wheat faces competition from barley on the stem, as well as Canola. Perhaps more so than previous years. This should see export margins for Victoria’s wheat open up. 

The moisture profiles across Victoria continues to build (thanks to “El Nino”) which creates a baseline yield and renews confidence for the 2024/25 crop. So we potentially have an average to big crop on big crops, which further burdens the carryout. 

Carrying grain in this interest rate environment is not cheap, add bulk handler carry and we quickly get to ~$4.50/t per month. 

Growers find themselves in a difficult position trying to balance cashflow and tax, with many seeking to defer sales to move income into next financial year. From a marketing point of view, the problem with this is that post July and with a good moisture profile across the East Coast, the potential of a price increase that outpaces the cost of carry and then some seems highly unlikely. 

We feel that the best opportunity for Victorian wheat this year will be to be exported in the first half of the year. We have a solid demand profile from China, a relatively low dollar and a quality profile in Vic that represents the only available export ASW in the country (of which China wants a lot of it). The majority of the currency forecasters that we follow suggest a long term appreciation in the currency to around 70 cents or higher. This is not good for local prices. Currency management is critical. 

We see an opportunity today, to parcel up wheat in Victoria, sell it via containers, bulk or domestically in the next 2-3 months to avoid carry, capitalize on solid Chinese demand, and also make the most of limited grower liquidity (fewer relative sellers, due to income deferral desire). 

By making these sales, we’ll reduce carry and order flow risks, but we can also monitor the world market later in the season and buy call options to participate in any upside volatility that we may encounter.

Essentially taking Vic wheat from a high supply/burdensome environment, converting it into cash, but keeping some skin in the game in the event of a global blow up. 

To have your grain managed by Flexi Grain, call Dustin Lovell on 0428861988.

If you didn’t have a chance to read the full Wheat Update last month, please see the full report here.

> Victoria Wheat Update 18/12/23