October 9, 2008

 

Australia's wheat futures edge up on forecasts for big crop

 

 

Australia's most active wheat futures contract could not sustain early gains, ending Thursday, 2 October 2008 little changed amid expectations of a big local crop, according to James Whatley, a risk management adviser at Ag Concepts Unlimited.

 

The ASX January wheat contract rose early to A$297 a tonne, but by 0625 GMT was last traded at A$290, up A$2 from Wednesday's, 1 October 2008 close. The Australian currency, a primary driver for Australian wheat prices traded early around US$0.6680 before rallying to US$0.6969 by 0625 GMT.

 

Whatley said the price of ASX January wheat appears low relative to Chicago Board of Trade December wheat contract, which he estimated at A$327/tonne in Australian dollar terms.

 

There is no reason to think the difference between the ASX and CBOT prices is due to anything other than expectations of a big crop in Queensland and northern New South Wales, which are now starting to be harvested.

 

Farmers will soon start to deliver new crop wheat into storage in the Newcastle Port zone, one of the delivery points nominated for the ASX contract.

 

Whatley said, if there's increased supply of wheat and there's shortage of storage space and transport, which is quite possible, that's going to put downward pressure on the cash grain price which could inevitably be weighing on futures.

 

The wheat harvest in central Queensland is starting to gather pace with GrainCorp Ltd. (GNC.AU) having received about 10,000 tonnes of wheat by last weekend, according to a person familiar with the situation who declined to be named.

 

The timing of the harvest in northern New South Wales will be interesting, given this area has in the week ended Thursday, 2 October 2008 morning received rainfall broadly in a range of 20 millimeters to 40 millimeters.

 

Combined with warm weather, this is slowing crop maturation but building up plant diseases including rust and fungus, and pests such as mites. Most of those areas don't need much more rain, ahead of the harvest, which usually takes place in November.

 

Most forecasts for production from the Australian wheat crop to be harvested by year end are in a range of 18 to 22.5 million tonnes.

 

Ron Storey of Australian Wheat Forecasters Pty Ltd. forecasts national wheat output in a rangeof 20 million to 22 million tonnes, according to a report Tuesday, 7 October 2008 on Australian Broadcasting Corp. radio.

 

If achieved this would be sharply higher than drought-reduced harvests of 13 million tonnes in 2007 and 11 million tonnes in 2006.