Global Wheat Outlook
November 2009
Will ReidAWB
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
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
Chicago Wheat
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1300
1400
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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300
400
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1300
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US HRW, Ukraine drought
Australian drought
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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300
400
500
600
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1200
1300
1400
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
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
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
New crop conditions good for major exporters, large supply expansion
Australia – first +20mmt in threes seasons
Massive increase in global import demand holds prices
World prices – How did we get here?• 2009/10… No major production issues anywhere!!! Price slide complete.. How low
can we go???
Chicago Wheat
200
300
400
500
600
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1100
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1300
1400
?Market makes lows as Aust production firms
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
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
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
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)
mm
t
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
c/o
Stocks to Use Ratio
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
200
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
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
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
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
400
500
600
700
800
900
1000
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
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)
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
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
(f)
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
4000
4500
5000
5500
6000
6500
7000
7500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(f)
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.
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
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
2010/11 – Looking Forward• US Balance sheet some modest tightening seen, but still an extremely loose stocks
situation!!
US Wheat Ending Stocks
200
300
400
500
600
700
800
900
1,000
90/91
91/92
92/93
93/94
94/95
95/96
96/97
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
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
0
50
100
150
200
250
300
350
400
450
HRW SRW HRS DURUM WHITE
05/06
06/07
07/08
08/09
09/10 (f)
10/11 (f)
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
300
320
340
360
380
400
420
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
(f)
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!
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
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
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
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
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?