A race to meet southeast Asian demand is driving Australian wheat prices lower as traders, spurred by a China-shaped hole in buying, wrestle with South American supply for a stronger grip on one of the world's major wheat importing regions.
Australia is scheduled to load over 1.3mn t/month of wheat in December and January, with over 40pc heading to southeast Asia, according to Argus-aggregated data. This suggests a surge in activity after a relatively slow start to 2024-25 (October-September), with customs data — available to the end of November — showing combined exports in October and November at just 1.7mn t, down by a third on the year. This drop was partly down to a lack of shipments to China, which took just 12,000t of Australian wheat in October-November, compared with 450,000t a year earlier.
The pressure on Australian exporters is twofold. As well as a lack of Chinese demand, a larger Australian crop this year means higher exports forecast this season — at 25mn t for 2024-25, a notable jump from the 19.8mn t estimated over 2023-24, according to the US Department of Agriculture (USDA). This could also mean a greater amount of feed grade Australian Standard White (ASW) wheat in the country's exports, market participants said, bringing Australian wheat sellers into direct competition with US and South American corn.
Australian wheat began competing in southeast Asia again in mid-December as sellers cut prices to compete with South American supply. The rise in activity was somewhat helped by sliding freight rates and a lower Australian dollar-US dollar exchange rate, which encouraged farmer selling, allowing traders to break out of a situation in late November where heavy cif commitments for December loading had yet to be covered on the domestic market.
In the past two weeks, importers in southeast Asia have finalised the bulk of their purchases to cover February-March with a mix of ASW wheat (basis 11pc moisture and 9pc minimum protein content), and competing 11.5pc protein wheat from South America.
Opportunities for feed wheat sales
Demand for Australian export feed wheat — ASW with no minimum protein content — is likely to depend largely on prices for corn, particularly new-crop corn from Argentina and Brazil.
Sellers of ASW without minimum protein content have attracted a steady stream of demand in southeast Asia, with prices comfortably below feed wheat available from South America. This is particularly helped by a seasonal drop in freight rates, with those between Australia and Thailand down to under $15/t, according to market participants.
Australia sold three Panamax-sized cargoes of feed wheat to Thailand last week, for shipment in May-July. Prices were just below $260/t cfr, traders said.
For now, South American corn is struggling to compete. Argentina's spot corn price even rose above the corresponding 11.5pc milling wheat contract on a fob upriver basis last week (see chart).
But South American corn could pose more competition in the medium term. Argentinian corn is at risk of drought, with some potential relief as forecasts show rain over the next seven days. Brazilian corn is also at risk, from wet weather causing delays to the soybean harvesting and in turn to safrinha corn planting, possibly even resulting in lower acreages. Prices currently reflect the very real risk of unfavourable weather weighing on the outlook for Argentina and Brazil's upcoming crops. But if weather conditions improve to allow the season to continue without a significant change in production outlook, prices could succumb to even greater pressure at harvest time.
In either scenario, US corn prices remain a key driver in the short term as private exporters continue to sell at pace.
