Drought conditions across large parts of Australia may have eased, but for the first three months of the winter growing season (i.e. April to June), large parts of WA and Queensland have had below average rainfall, and a lot of SA is average or below.
The big rainfall months that are having the most impact on the season to date are February (all states had above average rainfall), March (NSW had excellent rain), and April, where NSW, Victoria and SA all had average to very much above average rainfall totals.
Since then we have seen rainfall drop away for May and June. If the trend for July continues in the same direction, total growing season rainfall will dip enough to begin putting pressure on totals across SA and Victoria, and eventually NSW.
Once rainfall totals begin to slip, it is hard for yield potential to be maintained, even if we do revert to an average spring.
The bonus this year is that crops are generally well established, and a strong spring will be able to be utilised quite effectively. This is the assumption in the markets at the moment.
The forward market for 2020/21 wheat lifted over the past week, helped along by a close to $A6/t lift in the $A value of December futures. However, prices in all port zones lifted by more than this, indicating a firming in basis levels.
Benchmark basis levels in the Port Adelaide export zone are now close to $A20 a tonne, which is firmly in the 'normal zone'. That means that the $283/t forward price in that port zone is about where we would expect in the absence of drought, and relative to where United States futures and the Australian dollar are sitting.
NSW prices are still holding a $17/t premium to SA prices, which is more than we would expect in a year of full exportable surplus, so there is still a modest risk premium in east coast prices. WA prices are $19/t above Adelaide, which is close to normal.
If we do end up with a strong spring, the shock this year will be the $100 to $120/t drop in prices in NSW compared to last harvest. That will get lost in the impact of the yield rebound, but if yields are no better than long term average, it will give us a good measure on just how lucrative wheat growing will be in this country.
Wheat growing is not profitable in many countries this year. Australia needs to be watchful and not be blinded by a post-drought recovery.
- Details: 0411 430 609 or firstname.lastname@example.org