ASX plans West Australian wheat futures contract

 

 

Growers in Western Australia state - the heartland of the nation's wheat export industry - could soon have access to local wheat futures and options that could become a national and Asia zone price benchmark, Dougal Hunter, ASX Ltd manager of agricultural derivatives, said Wednesday (March 18).

 

Establishing a Western Australian milling wheat futures contract, to be known as WAW, will build on a suite of ASX product offerings set up to cover domestic grain markets on Australia's east coast earlier this decade, he said.

 

"Now, with the liberalized export market, there's a new opportunity for a new contract that better services the needs of export-oriented business, be it grower or industry or end user," Hunter said in a telephone interview.

 

Typically, most wheat exports from Australia are from Western Australia with production in east coast states mostly servicing the domestic market.

 

Of the 21.4 million tonnes national wheat crop produced this crop year ending March 31, almost 15 million tonnes is available for export. Western Australia accounted for 8.9 million tonnes, or 42 percent, of the national output and with only a limited domestic market nearly all this is available for export, making the state a major supply source to the global trade.

 

"We're looking for the Western Australian contract to become an export price benchmark for Australia," with the pricing point based on the Kwinana Port zone, Hunter said.

 

Milling wheat from other export ports in Western Australia and South Australia will price in line with the WAW Kwinana price, while east coast ports might also price in line with it, depending on seasonal and other conditions, he said.

 

Internationally, having the WAW contract that is always going to represent an export price has benefits, including the opportunity to use it as a benchmark in the Asia zone for wheat, including for Japan, he said.

 

That said, this will be most applicable in the first instance to pricing in Southeast Asia, a major export destination for Western Australian wheat, he said.

 

Participants have faced difficulties with North American wheat markets and the effective convergence between the future market and cash market, which has made managing price risk somewhat problematical for participants in Western Australia, he said.

 

The wheat export industry has changed in Australia with 22 companies now accredited to export the cereal after an export monopoly ended June 30, 2008, he said.

 

"There's genuine interest on all parts of the supply chain as far as looking for a transparent pricing point which also offers the ability to manage price risk and the closer to home the better," he said.

 

Subject to regulatory approval, the new wheat futures contract will be listed late May, he said.

 

The plan is to build volume ahead of the Western Australia harvest, which typically starts in earnest late October and finishes early January. Most interest is expected in a contract to expire in January each year, he said.