Australian wheat seen higher on lack of cheaper alternatives, demand optimism

Singapore — Australian wheat -- the cheapest in Asia, with the potential to expand its market share in the Middle East and Africa -- is slated for an uptick, as the Black Sea rally is providing plenty of room for Australian prices to move higher, industry sources told S&P Global Platts Jan. 21.

In the near term, buyers in the Middle East and North Africa will be turning to the European Union to fill the wheat supply gap, as Black Sea supply dries up on export restrictions. But exports from the EU may not be sufficient to meet the region's resilient demand -- fueled by an appetite to build national reserves and efforts to avoid a situation of food shortage amid the ongoing pandemic -- opening doors for Australian wheat sellers to step in, sources told Platts.

Meanwhile, firm Black Sea wheat prices are also lifting the fortunes of lesser expensive Australian wheat.

Russian 12.5% wheat rally outpaced Australian Premium White wheat Jan. 12 for the first time since Platts began assessing in March 2014, with APW up $25/mt, or 9%, on the month to $294.50/mt FOB Kwinana and Russian 12.5% up $44.50/mt, or a whopping 17%, over the same period to $303/mt FOB Russia Jan. 20, according to Platts data.

The switch in price spread, coupled with shrinking exportable surplus from Black Sea and the European Union also opens up opportunity for Australia to price more frequently in the Middle East and Africa markets.

Further boosting the Australian wheat outlook is the tight global corn supply at least until June, when Brazil is expected to start new crop shipments, as Argentina faces a smaller crop from dry weather.

The supply tightness and strong uptick in corn prices have cornered feed buyers in Southeast Asia and left them searching for alternatives such as feed wheat and feed barley.

Amid lack of competition from other origins, Australian feed wheat is receiving further boost in prices from the southeast Asian feed sector which in turn is driving up milling wheat prices.

As a result, the feed wheat and feed barley prices have moved into a steep inverse of about $10/mt between February and April shipments in the Southeast Asian feed markets.