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Analysis: Australian wheat likely to see renewed demand as Black Sea, Argentina prices rally

  • Author
  • Takmila Shahid
  • Editor
  • Shashwat Pradhan
  • Commodity
  • Agriculture

Australian wheat is garnering fresh attention from Southeast Asian buyers as the price spread with cheaper origins like Black Sea and Argentina narrows.

The spread between S&P Global Platts assessed Australian Premium White wheat and Black Sea 12.5% protein wheat has narrowed by $20.75/mt since September 19 to $32.75/mt Tuesday. This has come on the back of the surge in Black Sea wheat outpacing the rise in Australian wheat prices.

Strong farmer retention has been a common factor behind the recent price rally for all the three origins.

Australia APW vs Black Sea 12.5 pro wheat

Black Sea wheat has faced strong demand from both local millers and destination end-users in the Middle East and Southeast Asia.

So far this season, Ukraine's wheat exports have been more than 10 million mt, 47% ahead of last year's pace, data from Ukraine's agriculture ministry showed. This comes on the back of larger production and stronger demand due to competitive prices.

Russia, however, has fallen 9% behind last year's pace with wheat exports at 14 million mt since July. Unlike previous years, farmers in Russia have been spreading out their crop sales throughout this year.

Local buyers in Russia are building up stocks on fear of rising prices following the upward price trend seen in the fourth quarter of 2018.

Despite the rally, Black Sea 12.5% protein wheat is still $20/mt cheaper than this time in 2018, Platts data showed.

The exporters, who have been delaying covering their position to destination markets, are competing with buyers in the domestic market to secure grain, resulting in the domestic market being bid up.

Australian farmers have also been holding on to their crop, but for different reasons. As weather woes continue, farmers are exercising caution by avoiding sale commitments until there is clarity on the actual crop output and quality.

Farmers in Argentina are bracing for the return of heavy-handed export restrictions if the Peronist government wins the election on October 27, while the Argentine peso shows no sign of recovery.

"With the Peso so weak, the grain is like dollars in their pocket," said a trader in Singapore.


With as much as 80% of the total Black Sea wheat of milling grade, compared to 70% last year, farmers are keen to reap higher value from the better quality wheat.

As a result, they are blending low quality wheat with higher grades and selling it as 11.5% protein wheat. This has tightened the feed wheat availability from the Black Sea and narrowed the price spread with 11.5% protein wheat to $1-$3/mt.

Australia and Argentina may also have higher protein wheat due to smaller yields and a dry finish.

Feed buyers in Southeast Asia are mostly covered for the rest of 2019. Also, demand prospects for 2020 are questionable as African swine fever continues to spread.

Philippines feed wheat imports may decline by 500,000 mt in 2019-20 as a result of a 10% reduction in hog feed demand due to ASF, according to the US Department of Agriculture.

Moreover, return to a more normal weather from last year's El Nino means more local corn will be available for feed consumption.

Thailand is currently restricted by a 3:1 (corn-to-feed wheat) ratio due to a 22% decline in local corn supply from fall armyworm infestation, pushing buyers to explore other feed alternatives.

In Vietnam, officials recently urged farmers to repopulate their pig herds as the ASF has shown signs of slowing. However, the veterinary department is heard to be against the move as traces of the disease are still prevalent within the pig population.

The challenge for feed buyers is to anticipate the future downstream demand while battling rising prices. The aim is to fish for the cheapest origin, but the catch is the quality issue that may come with it.

If prices remain firm, feed buyers are likely to either substitute to other alternatives and/or consider purchasing lower quality feed wheat at discounted prices.

"Philippines buyers say they can consider [buying sprouted wheat] provided right discount [is given]," said a Singapore-based trader.

Currently, feed wheat offers from the Black Sea are around $240/mt CFR for November-December shipments. Offers tend to dip by $2-$4/mt for January-February shipments as Argentinian crop becomes available.

Platts Australian Standard White wheat, which competes for feed demand, was assessed at $236/mt FOB Kwinana Tuesday.

In the Philippines, the new crop Argentinian and Australian feed wheat price spread has narrowed to almost at parity, after accounting for the 7% import tax which the latter is exempt from.

This could revive further hope for Australian exporters, who have lost a significant market share in the Southeast Asian milling wheat market, and look to the feed sector to market their product.

-- Takmila Shahid,

-- Edited by Shashwat Pradhan,