APW/ASW spread narrows as Australia set for high-protein wheat crop

The harvest results from what is expected to be Australia’s second-biggest wheat crop on record show that heavy rains through the final development stages have not damaged the protein of content of the crop, with higher protein grades prevailing in most states. 

Anticipation of strong higher protein supply has led to the price difference between premium and standard wheat grades narrowing as the pace of harvest has picked up, with the harvest nationally now around 45% completed.

The results show that, in all states except Western Australia (WA), Australian Premium Hard (APH) grade is dominant, while WA results show an even split between ASW and APW, with APW slightly ahead.

That has held back prices in the export market, with the gap between the Agricensus FOB ASW and APW assessments declining from $10/mt on October 21, to $3/mt now.

“Given the (higher) quality that is coming in... spreads are narrowing,” an Australia-based broker said, adding that there is can still be further changes as the harvest continues in the main exporting region of WA.

“The price differential between ASW and APW, it's already converged,” a trader said.

The trend comes as the biggest increase in production is expected in the east of the country, where states like New South Wales and Queensland traditionally grow wheat with higher protein levels.

In addition, the region is also more focused on the domestic market rather than export, so there is stable demand for feed grades, potentially freeing up excess for the export market and providing bedrock demand for the lower protein grades.

“Typically the domestic market will consume a large chunk of the lower protein wheat,” a second trader said.

Meanwhile, in WA wheat production is expected to be recover following several years of drought conditions, while big volumes have already being booked for December-January loading.

The bulk of that buying comprises of lower grade wheat, as buyers who were burned in earlier seasons by tight availability of feed grades in the Black Sea look to move early to lock up supply now.  

Meanwhile, even with replacement costs falling in WA, it remains very difficult to find firm export offers for January-February, as the big exporting programme along with slow farmer selling keeps export prices supported.