By Darcy Ingram - AWB
With welcome rain across the month of June the majority of Australia’s cropping regions are shaping up to have an average to well above average production year for 2021/22. Victoria and South Australia have made significant steps in recovering from a late break, New South Wales and Western Australia are showing potential for a bin buster season, whilst farmers in Southern Queensland have reported the best start to winter cropping in nearly a decade. Even with significant changes to Australia’s production potential, a considerable carryover suggests we will almost certainly be heading in to another strongly export focused year.
The overall positive outlook for Australia’s grain production and significant carry-in stocks is beginning to present itself as a potential problem for the trade in placing the grain and establishing fair value. Locally, old crop grain values have been experiencing a downward trend in recent weeks as export and consumer shorts are seemingly gaining access to stocks without too much difficulty following the beginning of a new financial year. Likewise in new crop, cereal values have softened as the trade takes in to account a growing crop size and Northern Hemisphere harvest pricing pressure. Canola remains the shining light of opportunity, quickly recovering to near record domestic values as the Canadian crop burns up under extreme drought conditions.
As expected, global values have come under pressure in recent weeks with harvest underway in the Northern Hemisphere and more grain enters the marketplace. Surprises in the USDA stocks and acreage report and overseas weather concerns have provided some bullish inputs to partially offset an otherwise bearish market period. US winter wheat harvest has surpassed the halfway mark and while much has been made of the extreme heat and drought conditions in the North and South growing regions, the central and eastern zones received timely rainfall with the USDA rating the winter wheat crop 47% good/excellent as of last week. Wheat harvest has just begun in the key export region of the Black Sea and despite a less than favourable start, yields are only expected to be slightly down on the five-year average. Russia is expected to dominate the wheat export market yet again.
With high ocean freight rates seemingly here to stay and an overall positive outlook for global wheat production, export competition is expected to be fierce this year. Perhaps where pricing opportunity lies for Australian wheat growers is our freight advantage into Asian markets and the ability to produce high protein quality wheats. Whilst US winter wheat has escaped the worst of the North American heatwave, US and Canadian spring crops are in a very bad way. The US spring crop condition, of which 95% is grown in the Northern Plains, was rated at just 16% good/excellent last week compared with 70% last year. The US spring crop produces a sizeable portion of the region’s high protein wheat and with protein levels reportedly low in the US Hard Red Winter crop thus far we may see a squeeze in high protein quality wheat that will hopefully extend into Australian markets.