APW-ASW price spread widens to record levels amid Australian weather woes

Prices of Australian Standard White wheat have plunged on the back of wet weather during peak harvest period in Australia, raising quality concerns and widening grade spreads to record highs.

S&P Global Platts assessed ASW at $30/mt below Australian Premium White on Nov. 18, with the spread widening by a whopping $23/mt since the start of November and the widest since Platts started assessing ASW in October 2019.

Typically the two grades would trade within around $5/mt of each other and both had been rising steadily from a price of around $280/mt at the start of August.

But in November they have headed rapidly in opposite directions. On Nov. 18, APW was assessed unchanged at $355/mt FOB Kwinana while ASW was down $10/mt on the day at $325/mt FOB Kwinana, for cargoes loading between mid-January and mid-February.

Heavy rainfall has swept across most of the Australian wheat belt in the past two weeks, at a time when the harvest should be in full swing. In the past week, South Australia and the East Coast received 50-100 mm of rainfall while Western Australia got between 10-50 mm, according to Bureau of Meteorology's weekly rainfall update.

Rain during the harvest period not only slows the pace of harvesting but also dilutes the protein levels of wheat. The harvested wheat so far indicates a large portion of wheat is of lower protein, according to sources.

As well as causing the APW-ASW spread to widen sharply, it is also biting into the liquidity of milling grades as suppliers are cautious to take any positions on higher protein wheat before getting more clarity on overall wheat quality and the mix of grades.

"The APW is pretty tight now (or at least perceived as tight until we get more harvest in New South Wales/South Australia). I think that ASW no minimum protein is essentially feed wheat," said a trader in Australia.

Another trader agreed, noting that ASW and feed wheat price spread is more or less flat as "there is a lot of ASW low protein in Western Australia with not many places to go."

Fierce competition from Indian origins in the feed wheat complex is also putting downward pressure of Australian feed wheat prices, as many feed millers in the region, especially in the Philippines, are pure price buyers.

Conversely, a general tightness in higher protein wheat grades globally and lack of competition from other origins in Southeast Asia, is providing room for Australian milling wheat prices to trend higher.

Black Sea wheat continues to be priced out of the region due to export restrictions while the price discount for Argentine 11.5% protein wheat on CFR basis is not sufficient for a significant switch away from Australian milling wheat, sources said.

Moreover, many flour millers in Southeast Asia cannot accept Indian wheat for milling purposes due to quality concerns, ruling that origin out from the milling grade competition unlike in the feed complex.

Philippines buy tender

The retreat in prices of low grade Australian wheat has prompted some demand in Southeast Asia, with the Philippines' Import Group back in the market for the first time in almost four months with a tender that closed Nov. 17.

The consortium is heard to have booked all four positions of 55,000 mt feed wheat at high $340s/mt CFR.

The first position was Indian feed wheat sold by Viterra for January shipment. CBH sold Australian feed wheat as the second and fourth position for Feb. 20-March 12 and March 17-April 6 shipments respectively. The third position was also Australian feed wheat sold by CHS for March 5-25 shipment.

Freight for 55,000 mt from Kwinana to Subic Bay was indicated at $26-$27/mt while from India it was indicated at around $35/mt.

The competition was strong between a few suppliers across all four positions for both Australian and Indian feed wheat, according to a lineup seen by Platts. The second best offers for the first and second position were in the low $350s/mt for both Indian and Australian wheat.

While there were a few suppliers at similar levels for both the origins for the second position, only one supplier showed low $350s/mt from Australia for the first position. The other two Australian offers for the first position were $15/mt higher at mid $360s/mt CFR, indicating the tightness in availability for Jan-Feb out of Australia.

"[For] January, there is no elevation and [for] February [there is] minimal. [But] buyers won't pay a $10/mt [monthly] inverse," said a trader, suggesting the only low $350s/mt Australian wheat offer for position one is a representative market value.

As for positions three and four, second best offers were from Australia at high $340s/mt CFR. Indian wheat was not offered for position four and for position three, the sharpest offer from India was at $353/mt CFR.