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Offers to Iraq tender underline competitiveness of Australian wheat

agrimoney.com, 19.03.18


Australian wheat came in cheapest offered to an Iraqi tender, underlining the competitiveness of the origin, which is even beginning to rival Black Sea supplies on price.

Iraq was offered Australian wheat as low as $306 per tonne, on a cost and freight basis, with other 50,000-tonne cargos from the origin priced at $309.95, $313.50, $318 and $340.48 per tonne.

All but one of the offers undercut US cargos tendered to Iraq, and which were priced at $332.17, $337.00 and $364.05 per tonne.

While no offers were received from Black Sea origins, which were not invited to tender, nor indeed from Canada, which was, the offers reflect the growing profile of Australia in tenders, even as that of the southern hemisphere’s other top wheat exporter – Argentina – is waning for now, as its competitiveness wanes.

‘Competitiveness has improved’

Black Sea milling wheat and feed wheat values have rallied over the past two months, “as record demand and exports continued to gnaw away at what was considered a record crop”, traders at Cofco International Australia said.

On Monday, Ikar pegged the price of export supplies of Russian wheat with 12.5% protein at $209 per tonne, a rise of $1 a tonne week on week, and up $18 per tonne so far this year.

SovEcon said that prices held at $208 per tonne, a gain of $17 per tonne so far this year, and $1 from the three-year high set earlier this month.

By contrast, export prices of Australian standard white wheat (ASW) and premium white wheat (APW) “in both South Australia and Western Australia have managed to strengthen, but only by $10 per tonne”, Cofco International Australia said.

With a help from lower freight rates too, “all in all, Australia’s competitiveness has improved around $15 per tonne in the last three months throughout Asian markets.

“This change in price relativities now sees Australia only between $5-10 away from competing into various feed wheat markets in the region verse Black Sea.”

‘Very solid support’

However, with Australia’s exportable surplus sapped by a weak harvest, meaning the country “really needs to export 14m-15m tonnes, feed wheat demand from any markets other than Philippines does not need to occur”, Cofco said.

The Philippines - to where Australia can export feed wheat without tariff, thanks to a free trade deal, compared with a 7% levy on imports from most other origins – is a key market for Australian grain shippers.

The outcome is “some very solid support for the Australian market, due to these price relativities”.

This has been evident in Sydney futures in east coast Australian wheat too, which closed on Monday at Aus$271.00 per tonne, down 1.8% so far in March on local terms, and by 1.0% in US dollar terms.

Chicago soft red winter wheat futures, by contrast, are down 7.9%, and Kansas City hard red winter wheat – often seen as more of a comparator to Australian exports – by 8.5%.

‘Quite high margins’

But while Russian cash prices too have proved relatively stable, there is scope for them yet to regain competitiveness, should market dynamics require.

Russian wheat suppliers are enjoying “quite high margins”, SovEcon said.

“Usually, their gross profit is several dollars per tonne, but in recent times it has reached $10 a tonne.”

This means that “Russian wheat exporters can cut prices further if needed”.

Their Australian rivals, meanwhile, may be in less of a hurry to drop their prices, at least while the country’s exports look able to coast their way to target.

https://agrimoney.com/news/news/offers-to-iraq-tender-underline-competitiveness-of-australian-wheat-55961



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