The global wheat market is about to turn its attention to Australia, which with Argentina is among the last major wheat crops to be harvested.
What happens here will impact both final global production and stock levels, as well as supplies available for world trade.
Rain patterns for August were much better than June and July, with strong rain across Western Australia, South Australia and Victoria. Dry areas continue to be central west and northern NSW, and into Queensland. There has also been follow-up September rains in South Australia and Victoria, but NSW has remained 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 south-eastern South Australia are faring well, with the below average rainfall re-emerging for western parts of South Australia and Western Australia.
The third area of focus is the impact of severe frosts that have hit NSW, Victoria and South Australia.
We know the Australian crop will be much smaller than last year’s record 35 million tonnes – the debate is about how much smaller. Recent weather patterns suggest production potential is still going backwards.
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 Port Kembla and Newcastle port zones have lifted $25 per tonne, with basis levels 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 South Australia.
Even southern prices have lifted over the week, with basis across South Australian and Victorian port zones averaging about $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 strong export shipping program, domestic use is high because of livestock prices and dry conditions, and growers in drought-affected regions will be holding old season stocks tightly.
The main question now is whether the Australian situation will be able to push CBOT futures and global wheat prices higher.
