We are on the cusp of the global wheat market turning its focus to Australia. We and Argentina are the last two major wheat crops to be harvested, and what happens here will impact both final global production and stock levels, as well as supplies available for world trade.
The rainfall patterns for August were much better than during June and July, with strong rainfall across Western Australia, South Australia and Victoria. The dry areas continue to be in the central west and northern areas of NSW, and up into Queensland. So far in September there have also been followup rains in South Australia and Victoria, but NSW has remained stubbornly dry.
There are three areas of focus for the Australian crop outlook. The main one is the ongoing dry in northern NSW.
The second is for the winter growing season rainfall to date. For the April to August period all of NSW is below average, to very much below average for that important growing season rainfall accumulation. Victoria and southeastern South Australia are faring well, and are the best parts of the country, with the below average rainfall then re-emerging for western parts of South Australia, and Western Australia.
The third is the impact of severe frosts that have hit hard across NSW, Victoria and South Australia. It is early enough in the season, but reports of damage are coming in from a number of areas not normally impacted.
We know that the Australian crop will be much smaller than last year’s record 35 mill t, but the debate is about how much smaller. The recent weather patterns are suggesting that production potential is still going backwards, and this will become a focus as the northern hemisphere harvest winds down.
Within the Australian market there are certainly concerns emerging, with a strong lift in new and old season prices over the last week, against a modest decline in the A$ value of CBOT futures.
Prices in both the Pt Kembla and Newcastle port zones have lifted by $25 per tonne, with basis levels being pushed to full drought levels, in excess of $100 per tonne. The market is taking no chances, and is pricing itself to drag wheat into northern NSW from well down into Victoria, and potentially from South Australia.
Even southern prices have lifted over the week, with basis across South Australian and Victorian port zones averaging around $40 per tonne. These are also strong basis levels, and are sending the signal that across Australia, a much larger percentage of this year’s crop will have to remain in Australia.
This is somewhat surprising given the exceptionally large crop last year, and the assumed large carryover in all regions. However, we have had a very strong export shipping program, domestic use is high because of strong livestock prices and dry conditions, and growers in the worst of the drought affected regions will be holding old season stocks tightly, particularly given the price gains being seen at the moment.
The main question now is whether the Australian situation will be able to push CBOT futures and global wheat prices higher. Even for Australia growers with very strong basis levels, wheat prices remain too low for long term profitability, and way too low to compensate anyone facing below average yields from this harvest, so any gains will be welcomed by all wheat growers globally.