US and EU wheat prices tumbled in overnight trade. An agreement between Russia and Ukraine to create a wheat export corridor the major influence. Paris milling wheat was back AUD$36.82 on the nearby contract, the December slot down AUD$33.51.
The news also sent all three US wheat grades lower. New crop spring wheat out of the PNW now priced at US$9.45/bu at the port.
On the back of an envelope this would equate to a prime hard wheat ex farm LPP comparable to roughly AUD$500. Currently we are seeing bids around AUD$465 ex farm. It is unlikely that, although US values are now more competitive into the Asian market, that we will see local prices fall dollar for dollar with the US futures Monday, but it is also unlikely local values will not follow the fall to some degree.
Currently Russian milling wheat FOB Black Sea is priced around US$321. On the back of an envelope this would equate to something like AUD$400 XF LPP for a H2 type product (excluding any white wheat premium), into somewhere like the Middle East. Obviously, Australia would have a distinct advantage into the Asian markets. I guess what the physical market is trying to show is that the fall in US futures, and PNW prices, is simply reducing US values from last year’s drought market premium to a more comparable / competitive price point for their current crop, convergence.
As you can see on the attached basis charts local values are now approaching a point much, much closer to “normal” basis, as opposed to where basis has been for many months now. This may also be telling us that any future correction in US futures may be more closely reflected in our local prices, if basis continues to be sustained at these levels. One would continue to hope for better basis though.
This week Egypt picked up 640kt of milling wheat off Russia and France. Overnight Egypt confirmed an additional 120kt of wheat was to be included after further talks with private traders in Egypt. Values were estimated at US$403 C&F, at the time US values to Egypt were some US$40 higher.