With harvest all but done nationally, the market is now looking to confirm the size of the Aussie crop and to determine trade flows for the exportable surplus.

Australia’s supply becomes clearer

Looking across Australia, receival data from some of the larger bulk handling facilities indicates to us that it’s allaying previous concerns of a sub-20 million tonnes (Mt) Australian wheat crop.

In Western Australia, South Australia and Victoria, improved final production numbers versus forecasts have been more notable where late rainfall and finishing conditions have offset the production shortfalls seen in New South Wales and Queensland.

While official numbers will take a while to be confirmed, evidence is emerging that production is closer to the 22Mt mark than the previously-thought 20mmt.

WA has come home with a late finish too, indicating production numbers pushing 8Mt. SA has held close to its 4Mt, while it’s neighbour, Victoria, looks to push over 4Mt.

Demand by export destinations changing

The major focus for the balance of the season then switches to demand and where Australian wheat is likely to find homes.

With an export task of around 16Mt, demand will tend to switch back to more routine demand versus last season when the export task was some 7Mt higher.  Those destinations where demand will likely slip are those that increased their imports of Australian Standard White (ASW) type wheat quite markedly last season – The Philippines, Indonesia, India and China.

With Black Sea and Argentine wheat currently around US$25-30/t cheaper than ASW and Australian Premium White wheats into destination markets, this will lead to the slowdown in demand for Australian wheat.

The Philippines will still import some ASW wheat for feed purposes. This is due to a 7pc import advantage for Australian wheat versus other origins and quality preferences. So far though, much of the program this year has switched back to Black Sea feed wheat.

Indonesia meanwhile is also importing more Black Sea 11.5pc protein wheat due to the price spread with Australia. Demand is likely to be slightly lower than last year though as the government tries to curb the surge in wheat imports used for feed markets.  Nevertheless, the Indonesian industry will still need to use Australian milling wheat in the grists so there cannot be any 1:1 replacement of Australian wheat by Black Sea origin.

Indian demand this season will also be down due to a bigger local crop harvested compared to last April / May. The recent increase in the import duty for wheat from 10pc to 20pc has played its part too.

In the first 4 months of the export season (Oct-Jan), Australia will export around 3.8Mt. So, while this is a little bit behind schedule, the normal peak shipment months of February through to May are still ahead of us and this should put the program back on track.

At current relative values verse other origins though, it is unlikely that we can expect any significant price improvement. This is of course unless we start to see softness in the AUD and/or production problems arise for the northern hemisphere growing season.  At this point in the pricing season, it is hard to see a significant uptick in demand for Australian wheat.

Source: COFCO International Group