In Commodity News 17/10/2016
Nidera Australia supercharged the latest round of upgrades to Australia’s wheat harvest by pegging it at record high – and highlighting the need for weak prices to limit a surge in inventories of the grain.
The grain merchant – which last month said that “it is hard to see this year’s crop being under 30m tonnes” – on Thursday said the harvest was on course to surge even further from last season’s result, broadly pegged at 24.0-24.5m tonnes.
“Nidera Australia’s current wheat production estimate is north of 31m tonnes, which would be a record Australian wheat crop,” the merchant said.
The figure, which Nidera did not elaborate on, represents the latest in a series of improved expectations for the harvest, after jitters late last month caused by frost in Western Australia, besides excessive rain in the east of the country.
‘Near-ideal conditions’
On Wednesday, the US Department of Agriculture raised its forecast for the newly-started harvest by 800,000 tonnes to 28.3m tonnes, reflecting “continued excellent growing conditions.
“Yields are projected to be record high,” at 2.19 tonnes per hectare, a 15 rise year on year.
“Field conditions are considered near ideal in most regions with the exception of localised losses resulting from flooding in south east Australia and frosts in Western Australia,” the USDA added.
Two weeks ago, the International Grains Council raised its harvest forecast by 1.3m tonnes to 28.3m tonnes, saying that “while there are background uncertainties about crop quality in the east of the country, overall yields are expected to be very good”.
A day earlier, National Australia Bank, while issuing a central forecast of a 27.6m-tonne crop, said that a “harvest in excess of 29m tonnes is a real possibility” after rains which, while excessive in some areas, had overall “put winter crops on track for a bumper season”.
Exports and inventories
However, Nidera cautioned over the implications to prices of the huge harvest, which would come on top of stocks of some 5m tonnes of wheat, on its estimates, carried in to 2016-17.
While some 8m tonnes will be needed to cover domestic demand, “Australia will have an exportable surplus of more than 28m tonnes for the 2016-17 season”, said Peter McMeekin, the Nidera Australia origination manager.
Even an “optimistic wheat export programme for Australia for the next 12 months” would see some 20m tonnes shipped abroad, he added.,
The implication is that, even if shipments at this level were achieved, this would “lead to a 60% increase in the year-on-year carry out to around 8m tonnes”.
‘Basis has plenty of work to do’
In fact, Mr McMeekin signalled that Australian export prices currently looked uncompetitive in some areas against a competitive international price he pegged at $197 a tonne, on a FOB basis, for Queensland equivalent to about Aus$212 a tonne paid to growers.
In Brisbane, the bid to farmers for APW, the benchmark premium wheat grade, was Aus$236 a tonne, meaning “domestic basis has plenty of work to do to become export competitive out of Queensland.
For New South Wales and Victoria, where competitive benchmark suggested a grower payment of Aus$217 a tonne, APW bids were at about Aus$233 a tonne, meaning that “here again domestic basis must work lower to find export interest”, he said.
However, in Western Australia, farmer prices of Aus$233 a tonne were within Aus$10 a tonne of export competitiveness, factoring in cheaper shipping costs from the state to major import countries, while in parts of South Australia, bids of Aus$216 a tonne were only Aus$2 a tonne from par.
Quality factor
However, Mr McMeekin added that the quality of the crop was still a “big unknown”, with expectations of a “much higher proportion” of lower grade ASW standard wheat in this year’s harvest.
If proved true, such an outcome means that the “export picture looks even worse from a price viewpoint”, with export demand for ASW coming in some Aus$30 ($22) a tonne cheaper than for APW.
Source: Agrimoney
