Wheat is charting new ground and there is nothing pleasant with current cash market levels. They are a reality and we need to create future reference points. Currently, market wires, funds and buyers are reflecting a market with very little upside potential. The market is the lowest we have seen and there is no comparison data or references.
Right now – analyse business cashflow requirements and revise budget levels relevant to your accurate yield. There is no point reflecting on what you could have done. Make decisions now and don’t be afraid to ask yourself “what if this is the lowest and I lock in?” It may be, but it may not!
The EU recently reduced their ‘useable’ wheat estimated production by 11.2MMt last month to 133.3MMt, down 12% versus 2015/16 production (151.5MMt). You can assume ‘useable’ indicates good yield but generally poor quality and consequently plenty of it. We expect to see premium quality grades widen and conversely low grade spreads come under pressure. Buyers will likely be keen to play a part in the quality market, more so if there continues to be a lack of local supply. Focus on estimated grades and protect. It may prove worthwhile dropping $1 or $2/t on base APW1 to secure an additional $4 or $5/t on ASW, H1, H2. It is important to assess these numbers prior to contracting wheat.
As with wheat, the EU reduced their ‘useable’ barley production by 3.1MMt to 59MMt, down from 61.5MMt. Again, we assume yields are good with ample feed barley supply to hit the market. The EU is the number one producer and consumer of Barley and so it may be possible that locally, Malt premiums will be strong. Ensure your Barley strategy is tailored to suit your accurate yields and this consequently may satisfy reduced budget levels.
China has stated its imports of DDGs (Distilled Dry Grains) will decrease as it continues to focus on oilseed imports. DDGs are any grains used to produce alcohol and obviously includes Malt Barley. China will be the biggest swing factor this year in the barley market. We expect that Malt values will remain at competitive spreads but underpinned by feed values. With ample feed grain supply globally, it is hard to see Feed Barley maintaining current levels. If China steps back into the market in a big way, we would likely see values increase but this is a big if. They have reduced barley imports to 6MMT from 10MMT.
If you need to know more about what to do in a low priced environment please give Ten Tigers a call.