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Further bull run for wheat

GENERAL skittishness within international markets saw American wheat futures reach new highs, with Chicago Board of Trade (CBOT) December ’11 futures pushing through the US900 cents a bushel mark.

The price increase has been pushed along by big sales in the past week out of the US of over a million tonnes of wheat into non-traditional markets such as North Africa.

Generally, North Africa will accumulate the bulk of its wheat from the Black Sea and southern European countries such as France.

The purchase from the US has been seen by the market as acknowledgement from wheat importers that wheat stocks are tight.

“There was significant export activity out of the US, it certainly exceeded market expectations and provided confirmation importers are using US stocks as a last resort,” said Commonwealth Bank commodity analyst Luke Mathews.

“At the moment, what we’ve see with these purchases, including a huge sale to Algeria, is that European, in particular French, supplies have been eroded and buyers are turning to the US.”

Mr Mathews also said secondary influences including northern hemisphere dryness were playing their part in keeping prices buoyant.

“There is snow cover in the US, but later on, there is an ongoing concern about a lack of moisture leading into the northern hemisphere spring.”

“This is primarily an issue in the US hard red wheat belt, the softer areas are a little better, so it could be supporting further gains for high protein wheats.”

In China, Mr Mathews said there were also issues with dryness.

Elders Toepfer Grain managing director Mark Thiele said the overall strength of the international market was reflected in the support for the Australian market, in spite of the fact it had large amounts of downgraded grain.

“Even with the quality concerns, the market had stayed well supported, right down to those bottom grades.

“Prices for downgraded wheat and feed barley have held up pretty well domestically, they have remained reasonably solid over the past three weeks, even as the volume hits the market.”

Mr Mathews agreed that even while there had been a healthy spread between traditional hard wheat futures exchanges such as Kansas and Minneapolis and the more soft wheat focused Chicago Board of Trade, this spread had quietened down in recent weeks.

“There is no doubt there is going to be a shortage of protein wheats, but issues in other complexes, such as corn, mean there is support for feed as well, and the Australian feed wheat market has held up remarkably well.

“There are critically low stock levels of corn, which is continuing to support feed wheat values.

“We’ve seen that in the past few weeks with big Australian feed wheat sales into China, competing against US corn.”

Mr Mathews said it was lucky there was a strong feed market this year, as the Australian domestic market would not be able to cope with all the wheat this year.

“The Australian feedlot sector will consume less this year with all the grass feed around, and the other industries aren’t big enough.”

However, executive director of the Australian Grain Exporters Association (AGEA) Rosemary Richards said downgrading had not been as widespread as was feared in December.

“Obviously, there will be limited supplies of milling wheat, but overall, while some areas suffered from widespread downgrading, there was less of an issue than many analysts had expected.”

AWB general manager of commodities Mitch Morison also reported the sales news out of the US was the driver behind a rally which saw AWB pools for APW wheat rise $5/t to $365/t.

“The market was subdued through the Christmas period, but we are definitely seeing more buying activity now for grain from the European Union and the United States; indeed last week the USDA reported US sales of over one million tonnes for just one week,” he said.

“It is many months yet until the next northern hemisphere harvest and buyers are aware that world stocks are tight, particularly for good quality milling grain, so they must secure supplies or cope with the potential for even higher prices.”

Mr Mathews said Australian basis had come back as the international market picked up and as Australian logistics logjams as a result of the flood cleared up.

“Basis was above parity, but now, based on international futures, we are competitive internationally.”

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