May 8, 2008

Expected drop in wheat prices prompts Australia's AWB to slash returns

Australian wheat exporter AWB Ltd. (AWB.AU) Thursday (May 8, 2008) slashed its estimate of pool returns on collective export sales from crop to be harvested late in 2008, citing tumbling world prices.

Mitch Morison, General Manager of AWB's commodity management division, said the risk premium in US wheat futures has narrowed sharply in recent weeks amidst increasing confidence with the outcome of the northern hemisphere winter wheat harvest.

"Northern hemisphere crops are in excellent condition, with the EU, Russia and Ukraine set to compete aggressively in the export market when their new crop becomes available from mid July," he said in a statement.

US crops are generally in good condition with a large Soft Red Winter wheat crop expected, he said.

Although US Hard Red Winter wheat conditions have not been ideal for much of the growing season, recent moisture has put paid to worries over poor production; additional volumes would be likely if current conditions continue, he said.

"The combined result of increasing confidence in the production potential of major exporting nations and falling import demand from India has pressed prices lower," he said.

A stronger Australian dollar has also weighed on AWB's estimate, he said.

AWB's estimated gross return on 2008 benchmark Australian Premium White grade of 10.5 percent protein was cut by A$30/metric ton to a range of A$350 to A$370, free on board, or FOB.

AWB, the majority exporter from Australia, pools returns from its collective export wheat sales and deducts costs before paying growers.