July 23, 2008

Australia ASX Jan '09 wheat down; analyst expects 23 million tonnes crop

Australia's most active wheat futures contract - ASX January 2009 - could extend recent losses in coming days if US corn and wheat markets continue to weaken, risk adviser Phil Holmes at agricultural marketing concern Farmarco Australia Pty Ltd., said Tuesday (July 22).

Around 0630 GMT, the contract was untraded on-market with a spread of A$312/A$314 a tonne, after settling Monday at A$317, down from A$331.50 a week earlier.

"The markets are just purely reflecting international values at the moment, we've got an export-based market" for January wheat, said Holmes. "There could be some more downside yet, it depends a lot on the US corn market."

US wheat futures lost ground Monday on spillover selling from corn and soy markets and expectations of a record global wheat crop. Chicago Board of Trade September wheat closed under US$8/bushel for first time in 7 weeks, falling 13 cents to settle at US$7.91 bushel, its lowest close since June 4.

Holmes said the international price of wheat would normally come under downward pressure from a Northern Hemisphere harvest at this time of year. But the decline may limit with demand starting to pickup from Jordan, Pakistan and Syria, he said.

"You're probably starting to see some buyers starting to roll up now, trying to pick some lows in the market," he said of wheat.

"Corn's a little bit overbaked on the downside. I'm expecting to see a low there before too much longer," though not necessarily tonight. This may impact ASX wheat, he said.

Holmes said the condition of Australian crop to be harvested mainly in November and December has improved in Western Australia and New South Wales states in the past several weeks. Together, these two states normally account for almost 70 percent of national output.

"South Australia could do with a little bit more rain and Queensland's probably in a similar position," he said. "Generally speaking, we're on track for a 22 million to 23 million type crop, though we'd have to see a continuation of reasonably good weather to achieve those numbers."

A 25- million tonne crop is unlikely as it would need an excellent seasonal run through to harvest in all states, he said.

New crop selling interest is pretty slow, with most producers preferring to wait and see what the season is going to do, he said.

That said, some growers operating in seasonally more favoured growing districts may have forward sold some crops closer to A$400/ton, but growers in areas that aren't so favoured are probably standing aside for now, saying "too risky," he said.

Earlier Tuesday, GrainCorp Ltd. (GNC.AU) reported that good rainfall received in the past week across most of the Australian cropping areas eased concerns over maintaining the production forecast, though more rains are needed to fulfil yield predictions.

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