Markets

Weather great for harvest but not summer-crop prospects

Grain Brokers Australia, December 3, 2019

CBH Group’s Kwinana terminal is a major grain exporter, and trans-shipper of feedgrain to eastern states in this drought period. Photo: Fremantle Ports

A COUPLE of big weeks in the header has pushed the Australian winter-crop harvest well past the half-way mark as we enter the month of December.

However, total production, particularly of wheat, continues to decline as yields disappoint.

A national wheat crop of less than 14.5 million tonnes (Mt) is looking highly probable.

In Western Australia, total receivals will be lucky to top 10Mt, a fall of almost 40 per cent on the 16.2Mt received last season.

Canola receivals will certainly edge past the 1Mt mark, but will struggle to go much higher as its harvest has finished in most regions.

The barley harvest is also winding down across WA, even in its southern reaches. Yields have not lived up to expectations, and total production of less than 3.2Mt is expected.

The malting barley selection rate has also been quite poor. While it has improved as the harvest has progressed south, at around 23pc, including Malt2, it sits well below the long-term average.

Scramble for low protein

The Western Australian wheat harvest has been an even bigger disappointment, with yields coming in well below expectations, and total production could easily be less than 5.5Mt.

While it shouldn’t be surprising considering the hard finish, protein levels have been well above that of recent years, with only 10pc of deliveries going into the ASW bin, down from 46pc last season.

This has led to a rally at the low-quality end of the market as exporters scramble to buy wheat to blend away on feed shipments into Asia, and grade spreads have narrowed across the week.

Kwinana H2 was up around $5/t week-on-week to finish Friday at around $339/t free in Store (FIS). APW1 rallied $8/t to close the week at $338/t FIS and APW2 was up $11/t to $335/t FIS, but the biggest rise for the week belonged to ASW, up $13/t to $334/t FIS, only $5/t under H2.

Similar story in SA

The story on the eastern side of the Nullarbor is not much different. While production of wheat, barley and canola in South Australia will each edge higher than last year’s drought-ravaged numbers, the difference will only be minimal.

At this stage, it looks like wheat production will exceed 3Mt, but only just, unless the yields in the south are better than expected. Barley yields have surprised to the upside, pushing production north of the 1.7Mt produced last season, and canola deliveries are projected to be around 320,000t by the time harvest has concluded.

High protein has also been a feature of the SA wheat harvest, but the spread between H2 and ASW has remained relatively constant at around $8-$10/t over the past couple of weeks.

Victoria holds up

Victoria has fared the best this season, with a substantial turnaround in production compared to last year’s drought-impaired yields. The hot, dry and extremely windy weather mid-way through November did take its toll, particularly in paddocks that were ready for harvest, but yields continue to hold up reasonably well.

Production of around 3.5Mt and 2.5Mt for wheat and barley respectively is on the cards. As harvest pressure has mounted in recent weeks, prices have dropped enough to entice domestic consumers and the trade to buy up, especially with WA and SA now finding export demand for both wheat and barley.

Northern dry of concern

Meanwhile, the Bureau of Meteorology (BOM) released its summer outlook on Friday and the news was not good for large tracts of the Australian continent. The outlook summary suggests that the December, January and February will be drier than average for much of the nation, particularly across eastern states, and there is a high likelihood of warmer-than-average days and nights for a majority of the continent.

The dry signal is expected to contract to the east of the country as summer progresses, with much of the WA coastline, particularly the Gascoyne, Pilbara and parts of the Kimberley regions, having a high chance of being wetter than average in January and February.

While the outlook for drier-than-average conditions may ease for some areas heading into 2020, several months of above-average rainfall would be required to see a recovery in soil moisture levels due to the sustained dry.

No joy from IOD, SAM

A positive Indian Ocean Dipole (IOD) continues to be the primary climate influence in Australia, although it has progressively weakened slightly from record levels throughout November. Under positive IOD conditions, the southern two-thirds of the continent typically experience below-average rainfall and warmer-than-average temperatures. This is broadly in line with the BOM’s summer outlook.

The IOD’s influence over Australian weather is historically lower in the summer and early autumn months.  However, the strong IOD combined with the delayed migration of the monsoon into the southern hemisphere this year suggests it will continue to be a major driver well into the summer period.

The Southern Annular Mode (SAM) is the other significant climate influence at the moment, and it remains in negative territory. SAM refers to the (non-seasonal) north-south movement of the strong winds that blow almost continuously in the mid to high latitudes of the southern hemisphere. This belt of westerly winds is also associated with storms and cold fronts that move from west to east, bringing rainfall to southern Australia.

A negative SAM typically means drier conditions for eastern Australia and wetter conditions for Tasmania, as the winds have not migrated north over southern Australia leaving the rains falling south of the Australian landmass.

Summer crop looks tiny

The past three months have not been kind to those looking for rain, and the 2019 spring was officially the driest in the BOM’s 120 years of rainfall records. Of course, now that we are into the winter-crop harvest, dry conditions are welcomed, and a summer drought is the norm in the southern third of the continent.

However, the soils across the Australian summer-cropping regions are parched, and virtually no sorghum or cotton has been planted to date. According to satellite imagery, of the 1M hectares of arable land in southern Queensland, less than 10,000 hectares has been sown to any crop, including fruit and vegetables.  The planting window is closing fast with the prospects of a wide-scale plant are quite remote.

The smaller the sorghum crop, the bigger the transshipment task from SA and WA over the next 12 months, and the lower the exportable surplus available to meet inelastic Asian demand.

This article was written by Grain Brokers Australia

 

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