THE wheat market added a bit more value over the week ending October 5, with US futures lifting A$1.77 per tonne for the week, and Australian APW prices lifting by $6 to $10 per tonne across southern and eastern Australia, and Kwinana prices lifting by $20 per tonne.
This represents a gain in basis levels from a low in basis seen a week earlier. Basis levels in Victoria had been holding better than elsewhere, but last week saw basis improve in all port zones.
The dry across Australia is continuing to bite. Yield potential in South Australia is falling. Yields have been running below average in 90 per cent of the state for much of the season, despite crops looking very good. The lack of rainfall in May, June and July was always going to rob final yield without a strong finish.
Once again it looks as though spring will fail, and South Australian yield potential has fallen from around 85 per cent of average in late August, to 76 per cent of average now. If there is no more effective rain in October, we would see another 10 per cent stripped from yield potential.
The situation is no better in Victoria, but in that State large areas have been in full drought mode for some time, so the percentage losses from the end of winter are not going to be as severe as those in South Australia. The larger losses were already in place, and should have been accounted for in national production forecasts already.
That leaves NSW, Queensland and Western Australia. Some really early districts are already harvesting, so the dry September has had limited impact on those small areas of the Australian wheat belt, but large parts of NSW and Western Australia may end up losing as much as 10 per cent of their yield potential compared to where things were looking in August.
ABARES official production forecast put the national wheat crop at 25.284 million tonnes in September. Some were even suggesting a crop near 27 million tonnes, but those optimistic projections probably failed to take into account the full impact of below average winter rainfall across South Australia and Victoria at that time.
We are now looking at losing at least 10 per cent off the production figure, pulling it back closer to 22.75 million tonnes. This will come off the global balance sheet as well. However, the estimates for the Canadian crop have just been increased by 1.5 million tonnes, and are likely to be increased further.
From this perspective, what happens in Australia may end up having little impact on the global supply, and, in the end, have little impact on the price levels we see in US futures markets.
In the short-term our dry finish been a contributing factor to recent rallies, but longer term, if any shortfall here is covered from elsewhere, the global balance sheet will remain close to unchanged.
Domestically the tightening season is having some impact, with basis levels lifting. We were heading towards basis levels of zero in the Port Adelaide export zone, and logically, not much better than that in eastern port zones. However, the dry in Victoria has underpinned basis levels in Victoria and southern NSW, and that has spread to the Newcastle zone as well. The ongoing drought in Queensland has also continued to support basis levels.
Malcolm Bartholomaeus is the market analyst for Bartholomaeus Consulting, Clare, South Australia.
