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Growers who used Australian dollar (AUD) wheat swaps over the past two years as a buffer against a strengthening Australian dollar could be achieving returns of up to $37 per tonne above the at-port cash price for APW wheat. An analysis of National Australia Bank agribusiness clients' hedging programs for the 2003/04 season found many growers were able to successfully hedge against the rising Australian dollar. "Prudent hedging programmes aligned to protecting profitable values resulted in the average producer hedge of $224/tonne. The $224/tonne figure represents the average for all National clients who sold December 2003 AUD wheat swap contracts," the National's head of Agribusiness Risk Management Services Tim Keith said. "After allowing for the strong basis levels seen at harvest this would equate to an approximate APW return of between $210 † 215 per tonne port," Mr Keith said. This week, traders were quoting cash prices for APW of $178 at-port (Newcastle). The National's analysis looked at the average hedge position for clients who had sold December 2003 AUD wheat swaps over the previous two years. Despite the relatively strong wheat futures, domestic wheat values have had much of their potential shine taken off them by the 18 cent appreciation in the Aussie dollar over the past 12 months. "With a one cent appreciation in the AUD reducing returns on average by $3.50/t, Australian wheat producers have seen as much as $60 per tonne reduction in wheat values due to currency movements over the past 12 months. "Fortunately for Australian growers, international wheat values in US dollars have remained well supported during this time, reducing the overall impact of the stronger dollar. "Growers using the National's AUD wheat swap were not only protecting themselves against adverse movements in the futures markets but were also covered against currency changes. Wheat price protection can be taken up to 3 years in advance. "While the average return achieved by producers who used the National AUD wheat swap was above cash prices this harvest, the major benefit of swaps for growers is the ability to lock in prices that protect their profitability, rather than looking for short term advantages over the cash price. "The swap gives growers the capacity to protect profitable hedge levels up to 3 years in advance without having to make a commitment to selling the physical commodity until harvest," Mr Keith said. "We are already seeing people locking in hedge positions using swaps for the 2006/07 harvest. "Early hedging gives growers more certainty as they move to prepare their cropping programs and budgets for 2004. "If growers want to try swaps for the coming season, they will need to register with the National as swap customers and set up trading limits so if there is a spike in wheat prices in the new year, they will be able to move quickly to lock that price in," Mr Keith said. The National AUD wheat swaps are simple hedge contracts in Australian dollars that allow growers to sell wheat at a preset price for a certain date. Growers can settle their swap at any time during the contract period. Growers can use swaps to hedge their returns and then choose to deliver wheat to the national pool, warehouse or sell for cash.
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