AUSTRALIAN wheat growers need to be prepared to lose market share in South East Asia, according to global grains expert Stefan Vogel, with Russia and Ukraine expected to continue exporting some of the highest volumes of wheat in the world.
While wheat yields in Australia have increased by 50 per cent in the past 16 years, those in the Black Sea region of Russia, Ukraine, Kazakhstan, Romania, Bulgaria, Hungary and Serbia have doubled.
So how did the Black Sea region become a key player on the global market? Mr Vogel, Rabobank's head of agriculture commodity markets research, said in the late 1970s the region's wheat supply was almost non-existent and political leaders were forced to import grain stocks from the United States.
"The president at the time basically begged the US for grain and from that time on he thought, ‘We are going to change this whole system, we are going to produce it in the country and never have this problem again’," he said.
“In the high commodity price times of 2007-2010, that is when most of the Black Sea region came into production."
This season, the region produced about 25 million tonnes more than the previous five-year average, going from 60mt to 85mt.
"I see that this production volume will become standard and they will produce to move it out of the country," Mr Vogel said.
Australia's preferred export market is South East Asia, where has increased rapidly because of population growth.
But Mr Vogel said traditional import regions for Black Sea wheat such as North Africa have lessened, and about 5-10mt of the region's 25mt of additional export volumes would need to be absorbed by the South East Asian market.
"From 2010-14 (the) US and Canada lost market share and from here on in the difference will be the addition of big players Argentina and the Black Sea region making their presence felt," he said.
Australia will most likely not match Russian wheat production this season, Mr Vogel says, but because the region has no incentive to increase production, Australian growers have options to limit the impact of its market presence.
"Australia and (the) US have the highest production costs in the world – growers need to try make sure Russia is not cheaper than them and manage costs to be competitive in the market,” he said.
"The wheat pie is big enough but there will always be a year when Australia has a 30mt crop and Russia has an 85mt crop, so that will impact Australian farmers in one way or another.”