THE first official Australian estimate of the 2017 winter crop is likely to further strengthen domestic grain prices, in line with a steady to stronger outlook for world values now that weather and stocks news has been digested.

Harvesting cereals in Western Australia. Source: Department of Agriculture and Food, WA.

Due out tomorrow from the Australian Bureau of Agricultural and Resources Economics and Sciences (ABARES), the crop report is likely to forecast a good to average seasonal outlook for eastern states, a neutral one for South Australia and troubles in the west.

Victoria, NSW and parts of Queensland have enjoyed the best start to the winter-cropping season, and growers in these states are expected to opt for as much pulse and canola plantings as their crop rotations will allow.

Their strategy is shaping up as sufficient to take supply-side pressure off cereal prices, which have been drifting upwards this month on weather concerns in northern-hemisphere crops, and dry post-sowing conditions in parts of the West and South Australian grainbelt.

The monthly USDA production report, released after Friday’s market close, estimated a slight increase in world stocks of wheat, which combined with much-needed rain in parts of the US, caused the Monday US wheat markets to dip before the overnight correction.

Again, weather is king, and more highs than lows have been hit in the past week in US and Australian markets.

• Last week the ASX eastern January wheat futures contract traded firmer each day until its peak on Thursday closing at A$260/tonne, the highest since early August last year.  ASX wheat futures volume and open interest increased during the week and were the largest for several months;
• Australian APW1 wheat prices hit their highest levels so far in 2017 late last week, with the delivered Melbourne price climbing to A$240/t;
•  The AUD hitting US 75 cents last week has not weighed on Australian cash grain prices, which again points to underlying support.

Cash markets

Cash markets remain supported in wheat and barley. Barley is still working into export markets, and supplies are becoming very hard to find.

In wheat, export demand is not as supportive to current pricing as new-crop production concerns are.

Cash markets are finding strength as liquidity dries up, particularly in barley, where the market rallied approximately $3-5/t on Friday on a combination of dry conditions, and export demand for shipments in coming months.

News from Western Australia and South Australia, the two states with the biggest export focus, has continued to fuel the drawdown of stocks, with CBH Group last week saying it had set a new record in the first seven months of its shipping year by exporting a record 11 million tonnes from its most recent winter-crop harvest.

Export markets

A modest reduction in the USDA estimate for India’s wheat crop, which is now being harvested, and steady Middle Eastern and North African demand, appear to be enough to keep supply-side pressure off Australian wheat markets outside Asia.

Dry conditions, particularly in Spain, have reduced Europe’s ability to offer into these markets.

Recent export demand which has helped to ease stocks pressure on Australian wheat prices in the global market include:

• Saudi Arabia bought 805,000t milling wheat at US$213-$222/t cost and freight for August to October delivery. Australia has a chance to supply in the early position before Northern Hemisphere new-crop wheat becomes available;

• Sales to Iraq, where US wheat was the cheapest origin supplied at US $265/t cost and freight;
• Algerian tender for 450,000t was booked at US$197-$199/t for August, and is most likely to be based on discounted French replacement values;
• Egypt’s General Authority for Supply Commodities (GASC) has bought 360,000t of Russian/Baltic wheat for prompt shipment;
• GASC has expressed interest in sourcing further Australian Standard White (ASW) cargoes, which could help to absorb a late rush of lower-protein wheat as Australian growers empty silos in readiness for the 2017 harvest.