Global Wheat Outlook November 2009 Will Reid AWB

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Global Wheat Outlook November 2009 Will Reid AWB

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Global Wheat Outlook November 2009 Will Reid AWB. World Wheat price – What are the drivers?. Supply and Demand!!! Supply in major exporter nations is key, and by far the largest swing factor - PowerPoint PPT Presentation

Transcript of Global Wheat Outlook November 2009 Will Reid AWB

Page 1: Global Wheat Outlook November 2009 Will Reid AWB

Global Wheat Outlook

November 2009

Will ReidAWB

Page 2: Global Wheat Outlook November 2009 Will Reid AWB

World Wheat price – What are the drivers?

• Supply and Demand!!!

• Supply in major exporter nations is key, and by far the largest swing factor

• Global import demand. Far less volatile than production in totality, BUT… One tonne lost production in many importing nations with significant domestic production

is a tonne of increased import demand.

• Futures markets... Can lead price for many grades/origins of wheat

• Supply and Demand multi faceted• Global

• Domestic• Grades (eg. Hard vs Soft)

• Perception of where risk lies in the balance sheets is the real driver of short to medium term prices

Page 3: Global Wheat Outlook November 2009 Will Reid AWB

World prices – How did we get here?• 2005/06 season and prior… two years of comfortable world stocks post global

tightness 2002/03 season.• Futures stuck broadly between 300 to 400 c/bu

• Global Wheat FOB values during 2005… 125 -150 USD/mt

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Page 4: Global Wheat Outlook November 2009 Will Reid AWB

World prices – How did we get here?•2006/07... Production issues surface… US HRW drought.. Ukraine drought..

Australian drought… slash major exporter production 23mmt year on year… ending stocks fall to 13% stocks/use.

• US Futures push through 500c level• Global FOB values led by mid/high protein wheat above USD 200 FOB by late 2006

Chicago Wheat

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Australian drought

Page 5: Global Wheat Outlook November 2009 Will Reid AWB

World prices – How did we get here?• 2007/08… consecutive production disasters in Australia and Ukraine… Canadian, US and EU production forecasts reduced late in the season... Combined with tight

carry in stocks, S&D is explosive! Price responds accordingly…• US futures explode to over 1300 c/bu

• Global FOB values reach record levels over 500 USD/mt early 2008

Chicago Wheat

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US HRW, Ukraine drought

Australian drought

US/EU winter wheat hvst plagued by extreme wet weather

Canadian dryness

Australian drought

Russia/USA exports explode with limited availability from other origins

Kazakstan / Russia / Arge ban exports

Page 6: Global Wheat Outlook November 2009 Will Reid AWB

World prices – How did we get here?• 2008/09… Massive increase in prices leads to acreage expansion… Major exporter

yields also in general good to excellent.. A massive supply side response. Middle East drought increases global import demand dramatically, dampening scale of price

slide.• Sub 200 USD/mt FOB APW wheat trades late 2008

Chicago Wheat

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New crop conditions good for major exporters, large supply expansion

Australia – first +20mmt in threes seasons

Massive increase in global import demand holds prices

Page 7: Global Wheat Outlook November 2009 Will Reid AWB

World prices – How did we get here?• 2009/10… No major production issues anywhere!!! Price slide complete.. How low

can we go???

Chicago Wheat

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?Market makes lows as Aust production firms

Page 8: Global Wheat Outlook November 2009 Will Reid AWB

Canada

Production

24.0

28.6

20.05

25.27

Exports

18.0

16.8

16.38

19.43

Major Exporters

USA

Production

60.3

68.03

55.82

49.32

Exports

23.8

27.63

34.4

24.73

European Union 27

Production

138.0

151.64

120.2

124.9

Exports

19.0

24.5

12.27

14.03

Australia

Production

23.5

21.5

13.8

10.8

Exports

15.5

14.0

7.5

8.7

Argentina

Production

8.0

8.4

18.0

15.2

Exports

2.5

5.5

11.2

10.5

2009/10 (f)

2008/09 (e)

2007/08

2006/07

(mmt)

Source: USDA, E= Estimate, F = Forecast

Page 9: Global Wheat Outlook November 2009 Will Reid AWB

Major and Minor Exporters

Ukraine

Production

20.5

25.9

13.9

14.0

Exports

9.0

12.5

1.24

3.37

Russia

Production

59.5

63.7

49.4

44.9

Exports

18.0

18.5

12.5

10.8

Pakistan

Production

24.0

21.5

23.3

21.7

Exports

1.0

2.4

2.2

0.2

Kazakhstan

Production

17.0

12.5

16.6

13.5

Exports

7.5

5.0

8.2

8.1

2009/102008/09 (e)

2007/08 2006/07(mmt)

India

Production

80.58

78.6

75.81

69.35

Exports

0.2

0.2

0.0

0.2

China

Production

114.5*

112.5

109.3

104.47

Exports

1.5

0.75

2.8

2.78

Source: USDA

Page 10: Global Wheat Outlook November 2009 Will Reid AWB

Current situation – Global stocks are loose!• Major exporter stocks are the driver of the global price of wheat• Despite production falling 34mmt, ending stocks still rising!!

Major Exporter Ending Stocks

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20

30

40

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80

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1991

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1997

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1998

/99

1999

/00

2000

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2001

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2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

(f)

mm

t

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

c/o

Stocks to Use Ratio

Page 11: Global Wheat Outlook November 2009 Will Reid AWB

Current situation – Global stocks are loose!• US stocks now to the point of extreme market overhang

• Production down 8mmt year on year, ending stocks still rising!

US Wheat Ending Stocks

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300

400

500

600

700

800

900

1,000

m/b

u

10%

15%

20%

25%

30%

35%

40%

45%

May 31 Stocks

Stocks to Use Ratio

Page 12: Global Wheat Outlook November 2009 Will Reid AWB

Current situation – Global stocks are loose!• Import demand is benign

Global Wheat Trade

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,00020

00/0

1

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

Page 13: Global Wheat Outlook November 2009 Will Reid AWB

Current situation – Global stocks are loose!• BUT!!! The stocks are NOT evenly distributed… RUSSIA and USA carrying the

majority of the exportable surplus stocks• Russian government long 8mmt wheat and rising

Major Exporter 2009/10 ending stocks… mmt

Argentina, 1.6

Australia, 3.9

Canada, 5.6

EU 27, 16.4

Russia, 16.5

Ukraine, 2.4

USA, 22.9

Page 14: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• The market typically reaches a point sometime in October to December where it

switches attention from current season to New Crop…

Chicago Wheat

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500

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1000

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

Page 15: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• So where will the problems develop???

• NORTH AMERICA – Significant reduction in planted area, price and weather induced.

• US SRW area down 20-30%• US HRW area down 5%

• Canadian Wheat area in long term decline!!!Canada Wheat Area - KHa

6000

6500

7000

7500

8000

8500

9000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(f)

Page 16: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• So where will the problems develop???

• EU / Russia / Ukraine… NOT losing wheat area!!!• New crop conditions generally ideal in EU… Area up slightly• Ukraine dryer than ideal, but improved over last month

• Russian winter wheat area actually increased significantly over last year!!• Poor snow cover and planting conditions will increase market sensitivity to winter

kill potential

Russian Wheat Area - K Ha

18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000

28,000

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1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

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2010

(f)

Page 17: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• So where will the problems develop???

• ARGENTINA…. Wheat area has plummeted!!• Farmer upset with excessive government taxes… not receiving the world price for

their wheat! Switching to oilseeds• Successive poor seasons (drought) also hurting production

• Argentina no longer a major player in global wheat export markets

Argentina Wheat Planted Area

2500

3000

3500

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4500

5000

5500

6000

6500

7000

7500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(f)

Page 18: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• Global Importers… Are there any issues?

• India a potential wild card... Poor monsoon... Usually followed by below trend yields… Watch local crop conditions carefully! Private Import program already

underway.

• North Africa... Some potential weather problems developing with dry start to season... A key for EU exports

• Middle East conditions currently ideal• Saudi Arabia Imports increasing as domestic production winding down.

Page 19: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• Initial forecasts of Global import demand show no demand surprise on the horizon

• But, its only November… 2010/11 forecast has more potential to rise than fall

Global Wheat (Grain) Trade

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000

2007

/08

2008

/09

2009

/10

2010

/11

Page 20: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• Ending Stocks overhang from 09/10 season is so large it will take very significant

production issue to threaten the balance sheet!!

Major Exporter Ending Stocks

0

10

20

30

40

50

60

70

80

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

(f)

2010

/11

(f)

mm

t

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

c/o

Stocks to Use Ratio

Page 21: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• US Balance sheet some modest tightening seen, but still an extremely loose stocks

situation!!

US Wheat Ending Stocks

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300

400

500

600

700

800

900

1,000

90/91

91/92

92/93

93/94

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97/98

98/99

99/00

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

m/b

u

10%

15%

20%

25%

30%

35%

40%

45%

May 31 Stocks

Stocks to Use Ratio

Page 22: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• Total US ending stocks hides the imbalance between US hard and soft wheats

• SRW tightening very significant for Chicago futures

US carry-out by class

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HRW SRW HRS DURUM WHITE

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Page 23: Global Wheat Outlook November 2009 Will Reid AWB

2010/11 – Looking Forward• With major exporter ending stocks near 70mmt and US carryout 800+m/bu, how

can the market rally?

Major Exporter Wheat supply

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/02

2002

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/05

2005

/06

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2010

/11

(f)

• Because 2010/11 production risk is all in front of us, and is very real!

• Lose 20 – 30 mmt of production in major exporters/importers, and the picture gets interesting!

Page 24: Global Wheat Outlook November 2009 Will Reid AWB

2009/10…2010/11 – Australian Context• What does it mean for Australia?

• Australian geographical location in relation to Consumers in Asia / Middle East is a real advantage over competing origins

• Rallying freight markets increase this advantage

• Sailing time to Indonesia

• WA – 6 days• US/Canada

Pacific - 21 days• Black Sea – 28

days• EU – 32 days

32 days

28 days

21 days

6 days

Page 25: Global Wheat Outlook November 2009 Will Reid AWB

2009/10…2010/11 – Australian Context Australian wheat values are currently firm in the global context

• WA APW FOB today compared to competition…• +35 USD to German 12 pro• +35 USD to French 11 pro• +45 USD to Russian 11.5

• +38 to US SWW• +12 to US PNW HRW 11.5

•For reference, freight spread to SE Asia is approximately: • 25 USD mt vs PNW, EU, Black Sea

FOB USD Values 25 Nov 2009

180

190

200

210

220

230

240

WA APW German12

French 11 Russian11.5

PNWSWW

PNWHRW 11.5

Landed SE Asia USD Values 25 Nov 2009

230

240

250

260

270

280

290

WA APW German12

French 11 Russian11.5

PNWSWW

PNWHRW 11.5

Page 26: Global Wheat Outlook November 2009 Will Reid AWB

2009/10…2010/11 – Australian Context• Where does WA wheat go?

•Bigger crops in SA/Vic real competition for WA• Freight Spread still provides some protection for WA

kmtIran 1,571Indonesia 1,333Yemen 613Korea, Republic of 589Japan 516Malaysia 478Viet Nam 291Kuwait 162China 160Bangladesh 157Sudan 139Iraq 104Thailand 90Singapore 74Philippines 72Egypt 70South Africa 64Saudi Arabia 55United Arab Emirates 32Fiji 23Bahrain 22Taiwan 17Mozambique 11Myanmar 7New Zealand 1Total 6,651

WA Wheat exports Dec 08 to Sep 09

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Iran

Indone

sia

Yemen

Korea

, Rep

ublic o

f Ja

pan

Mal

aysi

a Vie

t Nam

Kuw

ait

China

Bangla

desh

Sudan

Ira

q Thai

land

Singap

ore

Philip

pine

s Egy

pt

South

Afri

ca

Saudi A

rabi

a

Unite

d Ara

b Em

irate

s Fiji

Bah

rain

Tai

wan

Moza

mbiq

ue M

yanm

ar

New Z

eala

nd

Page 27: Global Wheat Outlook November 2009 Will Reid AWB

2009/10…2010/11 – Australian Context• Where will WA wheat find lost demand from last season?

• India – dependant on relaxation of import requirements for Bulk exports• China – low grade wheat

• East Coast and South Africa• Middle East – more higher protein demand (East Coast Aust.)

• Bottom line is price… WA wheat will need to move to a level of COMPARATIVE price competitiveness

Landed Sth Africa USD Values 25 Nov 2009

230

240

250

260

270

280

290

WA APW German 12 French 11 Russian11.5

PNW HRW11.5

Page 28: Global Wheat Outlook November 2009 Will Reid AWB

Coming Year – Conclusions• Today... WHAT WE KNOW

• 2009/10 season global wheat S&D is loose• Northern Hemisphere 2010/11 season winter wheat acres are down, but only

significantly in USA• Australian wheat is approaching the expensive end of price relative to competing

origins• Market is forward looking and 2009/10 season fundamentals are known, and have

already been traded• Nature of bounce from October lows means market will be very cautious to push

wheat to these levels again until we have clarity

• Today... WHAT WE DON’T KNOW!!

• 2010/11 production • New season spring wheat and southern hemisphere acres are a huge unknown.

• Ukraine / Russia winter wheat has had a less than ideal start to the season• Major importers such as North Africa have not had an ideal start to the season

• Will Indian crop disappoint?... Potential for an import program.• When will the Russian government start selling its soon to be 10mmt stockpile?

• USD strength/weakness, fund inflows... Will this continue?