Challenging year for Australian grain market

In fact, WA was the only state to have a decent crop in 2018. It looked as though the equivalent of the entire SA wheat crop would have to move east to cover domestic shortfalls. To achieve that, prices were still above $450 a tonne in the Newcastle zone as we came back from the New Year break.

Those price levels did two things. They made it attractive for wheat to be imported, and that pipeline was opened, with high protein wheat coming in from Canada for industrial processing. Secondly, they kick started the shipping trade from WA around to Brisbane.

By February wheat prices right around the country were falling. The biggest price falls were in SA, but Newcastle and Brisbane prices also fell, bottoming out $100/t lower in June. Basically, the market never recovered from those price falls.

The problem for traders in WA and SA was that there was now grain that would need to be exported, and we started the year with basis levels that had pushed the market well above export parity. That unwound as the year progressed.

So that has set the scene for prices for the 2019 harvest we are just completing. Even though the national crop is smaller, and there is still a need to move a lot of grain into the NSW and Qld markets, we have not seen the extreme price levels that hit the 2018 crop.

Prices have been a lot lower in all port zones, and this is despite CBOT wheat futures being much stronger year on year as we end the calendar year.

Globally we have seen wheat production, and wheat stocks, lift a little from 2018 levels. However, as we come into the end of this year futures are close to the highest levels seen since mid 2015.

This is being driven primarily by the early onset of winter that has hit the Canadian and US spring harvests, on top of the wet conditions seen in the US and parts of Europe that have impacted planting of the new winter crops. There are also pockets of drought.

The US and EU have been able to lift their exports year on year, filling gaps left by the Black Sea, Australia and other exporters.

This is all positive. It underpins the levels of the current Australian market as we enter 2020, and it sets the foundations for a strong 2020, particularly if seasonal conditions remain less than ideal through the northern hemisphere.