Australia remains on track to have a reasonable crop (somewhere between 18 and 20 million tonnes), because of the season in WA underpinning what could be a near record crop from the west.
Elsewhere in the country though, there are a lot of areas where the winter crop has been abandoned, and more of SA and Vic coming under pressure as spring conditions unfold against tight soil moisture levels.
The Australian market is structured to ensure that wheat and barley can move from WA and SA into the consumptive markets on the Darling Downs and northern NSW. That pricing structure will remain in place until a potential summer crop returns local grain to northern markets.
While east coast prices are easily high enough to prevent exports, WA prices are also looking high compared to prices from Black Sea exporters.
That should be a bit of a warning for price levels in Australia. Prices in WA should not be that much above export parity to ensure that enough grain gets diverted from export to domestic shipments.
When harvest starts, the gap between WA prices and prices from other global exporters should move closer together. That may give a general softening of prices across the Australian market, particularly if Australian growers are active sellers off the header.
The risk for growers with grain this year is that if the summer crop develops strongly in northern NSW and Qld, demand for grain from south and west may evaporate. While that might just be while the northern sorghum crop is consumed, if that crop is large enough, it may limit the price recovery late in 2019, leaving harvest prices as the peak for the year.
If growers combat that risk by selling aggressively off the header, we could see a significant price gap between new season wheat and prices for the last of the old season wheat as we go into November and December.
Cutting across all of this is the global market. The extent of any price fall should be tempered by the price levels being set by Black Sea wheat into our key Asian markets. At the moment Black Sea wheat prices are well under Australian prices for December shipment. However, the market is anticipating that Black Sea exports will begin to slow, and prices begin to rise. That may help close the current apparent price gap, instead of Australian prices falling all the way to cover the gap.
Predicting harvest price levels in all parts of the Australian market is difficult, with the pace of farmer selling likely to put pressure on prices against any support, or weakness, that may come from WA and SA prices needing to align with global export values.
If global prices increase over the rest of the year, which has been an expectation, it will underpin current prices in all parts of our market. If the price increase fails to materialise, Australian new season prices are likely to fall from current levels.
Meanwhile, CBOT futures have fallen further as Russian wheat prices ease against aggressive exports, and no apparent sign that Russian exports will be restricted by quotas or taxes. However, one story emerging is that phytosanitary checks on Russian exports will be made more rigorous, which may be a way of slowing exports without apparent market intervention.
