By Lyticia Wouguia, Christopher Delfin, Piratharsan Poologanathan
Chinese Market
The chinese farmers expect the price to rise with the Covid-19. Thus, they prefer to stock the wheat instead of selling at the current price. As stated in the below chart, even though the current fixed price by the Chinese government is 2240 YUAN and the market price is above,consequently chinese farmers prefer to store the commodity. This may be explained by the fact that the australian wheat is about to be banned. In fact many other commodities are already banned and the wheat is expected to be banned at its turn. The uncertainty is quite high and may challenge de traders. As a matter of fact, at least for the other commodity, the embargo affected even for transaction already made.
Australian future market
It is reported that these past few weeks, Australia is having good weather conditions which makes the production of wheat a lot easier. The table below is indicating that the situation of the wheat futures is normal. Compared to our 1st bulletin, the future market of wheat in Australia does not face the seasonality. In fact, it has a steady increase in the future’s price. This is due to expecting renewed relationships with traditional customers who have been buying wheat from other countries over the past few years because Australia has been facing poor seasons. It is expected that the traditional Asian consumers such as Vietnam, Philippines, Thailand will be actively seeking offers of Australian wheat on account of superior quality relative to other origins.
Australia and Argentina’s export situation
In 2020/2021 the wheat harvest is estimated at 27.9 million metric tons. This represents an increase of more than 84% over the previous season. Australian wheat exports are set at 17 MMT for the 2020/21 season, due to a larger exportable surplus created by favourable growing conditions in much of Australia this season. Western Australia’s wheat production for 2020/21 is about 8MMT, with APW (Australian premium white) and AH (Austarlin Hard Wheat). Argentina is in direct competition with Australian wheat exports and has gained market share in the Asian region over the past two years, not only for wheat but also for other feed grains such as maize.
The latest update from the Buenos Aires office of the US Department of Agriculture has reduced Argentina’s wheat production for 2020/21 to 17.4 MMT. This corresponds to a downward revision of wheat exports to 11.2 MMT, a 15 % drop from the previous year. The decrease in exports can be attributed to lower production due to dry weather (the La Nina phenomenon, which brings wetter than usual conditions in Australia, has the opposite effect in Argentina with drier than usual conditions) but also to increased competition from Australia.
Australian wheat is one of the cheapest in the world, which means that it is well placed to take advantage of strong international demand.
Recommendations
The potential ban from the Chinese government, might increase the price of the local production wheat. Therefore we recommend investing now. The global price of wheat is not likely to be touched by those measures.
Sources
https://www.barchart.com/futures/quotes/F3*0/futures-prices
https://www.world-grain.com/articles/14481-focus-on-australia
https://www.graincentral.com/markets/australian-wheat-priced-to-find-ample-export-demand/
https://www.farmweekly.com.au/story/7002078/australian-wheat-is-some-of-the-cheapest/