Market Morsel: Big crops = big premiums?
On Tuesday we covered the ABARES update in the report ‘ABARES the bears’. The national forecaster has increased wheat production to the third-highest level since the foundation of Australia.
The ABARES forecasts would have been put together in August/early September, at a time when expectations were greater, and wet spring was on the forecast. This wet spring unfortunately seems to be dissipating.
This is making expectations harder and harder to reach. However, we, along with many others, view a 26-27.5mmt wheat crop as a real possibility. This is still a big crop, and definitely exceeds domestic demand, we are back to exporting.
The past rubbish seasons have seen ‘wheat become wheat’. All wheat on the east coast was going in one direction, down the gullet of a beast. It didn’t matter whether you had ASW, APW or H2 – the price was generally the same.
In big years there can be problems with low protein wheat, we saw this in the other big years of the past decade.
As we move forward into a year of surplus, we will see the spreads return to normal levels where growers are rewarded for quality. If a wet finish occurs and low protein becomes the norm, we will see larger premiums for higher protein levels.
When it comes to taking out multigrade contracts make always check the spreads between grades. Also when it comes to harvest make sure that you assign your grain to the contracts which will provide the best return.