Weaker Australian dollar helps make grain export prices more competitive

The United States dollar has been strengthening against a basket of other currencies as the US Central Bank continues to indicate it will raise interest rates to curb rising inflation.

In addition, the current global economic climate and thoughts of a sustained global downturn are seeing funds move into US dollars which is adding further strength.

The US dollar has historically been seen as a safe haven for funds during time of economic uncertainty.

The result of this is the Australian dollar trading at its lowest levels since recovering from the COVID-19 pandemic in early 2020 to trade below 65 US cents briefly at the start of this week.

Weakness in the Australian dollar helps to make Australian exports such as grain more price competitive.

A 1 US cent change in the Australian dollar translates to about A$7.50 a tonne at current Chicago Board of Trade wheat futures levels.

A combination of the Australian dollar weakening over the week and CBOT wheat futures strengthening saw the Australian dollar value of CBOT wheat futures increase by $24.51/t or 5.19 per cent.

Despite the overall strength, it was a volatile week for CBOT wheat trading a 100 US cents a bushel range and ended the week up just over 20 USc/bu.

A main driver of the volatility was the escalation in the Ukraine conflict with more attacks on Ukrainian port infrastructure and Putin making a televised address announcing referendums to subsume regions currently occupied by Russian military.

The moves are making global traders sceptical the current grain corridor arrangement will be renewed after its expiry in November. Regardless of the corridor, the risk of executing grain sales from the region has seemingly increased.

A factor keeping a lid on prices is the size of the Russian crop, which keeps getting bigger and is expected to continue being priced aggressively into export markets.

In Australia, last week saw a lift in local demand and a lift in traded prices.

There were 34 different buyer businesses that purchased grain through Clear Grain Exchange with more searching for grain offered for sale despite the shortened week.

APW1 was trading $420/t in the WA port zones, $415/t Pt Kembla and $407/t Melbourne as examples. ASW1 traded $386/t Pt Kembla, $380/t Geraldton and $377/t Melbourne. Stock feed wheat traded $345/t Pt Kembla.

Premiums remain strong for higher protein wheat grades with APH1 making $506/t in Newcastle, H1 trading for $467/t in Melbourne, and H2 grades trading $446/t Newcastle, $443/t Pt Kembla, $441 Melbourne and $440 Brisbane.