A vessel loads at Viterra’s Port Giles terminal on South Australia’s Yorke Peninsula. Photo: Glencore Australia

THERE are no more soothing or relaxing sounds than the rumblings of distant thunder followed by the pitter patter of rain on a corrugated tin roof, an experience revived for those fortunate enough to receive rain in the last week.

While there is still the prospect of more falls this week, the rainfall recordings to date have been a touch disappointing compared with the forecasts prior to the change moving through the eastern states late last week and over the weekend.

The drought definitely has not broken, but it is a start and all falls were gratefully received in the regions lucky enough to make the scorecard. People are now looking for some follow-up falls in the next few weeks to confirm a change to the record dry pattern that has haunted and stymied agricultural production on the east coast since 2016.

It is too late to plant cotton, but forage sorghum, grain sorghum and mungbeans are all options available to those growers in Queensland and northern New South Wales who received enough rain to join up with their existing subsoil moisture, or those who can’t resist the temptation to get back in the game even though the rainfall was less than ideal.

At this stage, it is hard to see a substantial change to the summer-crop production numbers and eastern Australian consumers will continue to rely on grain movements from Victoria, South Australia and Western Australia to satisfy the majority of their requirements through to late 2020.

Drought cuts

The headers are now back in the shed in all regions except the Western District of Victoria, and the final winter-crop production numbers certainly reveal how deep the drought cut in 2019.

WA disappointed, Compared with pre-harvest expectations, WA disappointed, with its wheat, barley and canola crops coming in at 5.5 million tonnes (Mt), 3.5Mt and 1.1Mt respectively. With a late break in many regions followed by poor winter rainfall, the crops entered spring well behind the eight-ball. Below-average spring precipitation meant the crops never got close to average yield potential in most districts.

While production in South Australia was marginally better than in 2018, it was still well below average.

Wheat, barley and canola production finished up at around 3.0Mt, 1.7Mt and 0.35Mt respectively. Harvest receivals into the Viterra system were extremely disappointing and appear to be a reflection of increased storage competition and the immediate movement of grain direct into domestic demand points in the eastern states.

Bright in Victoria

The harvest is almost complete in Victoria, the only state where yields in 2019 have significantly surpassed the drought-ravaged 2018 numbers. Final wheat production is expected to be 3.5Mt, barley production is forecast to finish at 2.4Mt and canola production is estimated at 550,000t.

In a big year, New South Wales can challenge Western Australia as the biggest grain-producing state of Australia. Not in 2019. While the south of NSW generally had better crops than in 2018, other parts were much worse. The area of NSW wheat, barley and canola that was cut for hay was enormous. Add the proliferation of on-farm storages in recent years, and the state production guessing game gets increasingly difficult with each passing year.

That said, it seems that total NSW wheat production finished up slightly less than in 2018 at 1.6Mt. Barley production was also down year-on-year at 600,000t, but canola bucked the trend with output a little higher at 250,000t.

That leaves the “Sunshine State” of Queensland, where wheat production increased year-on-year to 600,000t thanks to a better-than-average season in Central Queensland. However, barley production remained static at 100,000t.

The wash-up is an Australian wheat crop of just 14.2Mt, the lowest since 2007 and the third lowest in the past 25 years. Barley ended up at 8.3Mt and canola at 2.25Mt. That means that national production of wheat, barley and canola was collectively less than 25Mt, again the lowest since 2007 when the collective total was 21Mt.

Modest export surplus

So what do we have to export? On the canola front, the exportable surplus is 1.4Mt based on domestic demand of 850,000t and no building or drawdown of stocks throughout the season.

On the barley front, I am calling the carry-in 1Mt, with a 200,000t increase in stocks leading to a carry-out 1.2Mt. If we call domestic demand for malting barley 1.1Mt and feed barley 4Mt, that leaves an exportable surplus of 3Mt, quite a modest target in light of historic demand from China.

However, sales into China have been slower than expected so far this season, and some traditional Japanese demand has been going to Canadian exporters. Other Asian consumers have stepped up, but the current pace is well behind that needed meet a 3Mt export target.

From a wheat perspective, the biggest moving target is the October carry-in figure. I have seen some estimates as high as 3.5Mt and some as low as 2.5Mt; let’s call it 3Mt. If we call imports 300,000t, then that gives us a total wheat supply of 17.5Mt.

Domestic demand is always interesting and tends to be underestimated in my book, but it should be around 8.5Mt, assuming we get rain, and the cattle-on-feed numbers drop in the second half of the marketing year.

If we assume that stocks are drawn down by 1Mt across the season, that leaves a carry-out of 2Mt and an exportable surplus of 7Mt. Looking at actual November exports and the December and January shipping stem, we will have exported 2.6Mt by the end of January. That compares to only 2Mt for the same period last season.

The stem for February is building, and Asian export enquiry for Australian wheat continues to surface. If export sales continue at the current pace, the wheat cupboard will be quite bare by the end of May.

While the season was extremely disappointing from a production viewpoint, the pace of wheat exports and continued enquiry from Asian consumers is supportive of current domestic prices, despite the premium to global values.

Unfortunately, the same can’t be said for barley exports, but the domestic balance sheet is quite tight and could handle a bigger carry-out number without being bearish, especially at the current price spread to wheat.

This article was written by Grain Brokers Australia

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