February 8, 2010

Australia wheat production pegged at 22.5 million tonnes

Australia's total wheat production for 2009-10 is forecast at 22.5 million tonnes, up on the revised estimate for the previous year, according to a USDA attache report.

Estimates contained in attache reports are not official USDA data. Below is an abstract of the attache report.

The 2009-10 Australian winter wheat harvest is complete and the shipping of these crops to export markets is well under way.

Most of the Australian continent was affected by a dryer-than-normal spring. In the worst cases, drought persisted. This adversely affected the winter wheat harvest which began in November with low rainfall and frost damage affecting yields in the southern of NSW and WA.

Planting of summer crops was also constrained by these dry conditions prior to planting. Widespread rainfall was received over Christmas and New Year and largely arrived too late to damage winter wheat crops, although some isolated weather damage had already occurred. This rainfall was also received too late to benefit area planted to summer crops as planting was mostly completed prior to this rainfall event. However, post expects summer crop yields to have benefited somewhat following difficult planting conditions. This rainfall has also improved the water supply outlook somewhat for the 2010-11 cropping season and has raised hopes markedly for the following 2011-12 summer crop season.

Recent regional crop travel undertaken by post revealed lower commodity prices and the strength of the Australian dollar is of greatest concern to Australian grain and feed producers.

Total wheat production for 2009-10 is forecast at 22.5 million tonnes, up on the revised estimate for the previous year and up the ten-year average of 19.7 million tonnes. This forecast increase in production for 2009-10 comes despite a poor finish to the season in some key production areas.

Although wheat production for 2009-10 is up on the previous year, final production remains well below previous expectations due to lower-than-previously expected yield. Current estimates place forecast yield at 1.63 million tonnes per hectare, which is largely in line with the ten-year average. Post's previous production forecast relied on a yield of 1.75 million tonnes per hectare, which is largely in line with the ten-year average minus the two lowest (and disastrous) yielding years.

The forecast of above average production in 2009-10 has been driven primarily by the forecast of an all time record planted area of 13.79 million hectares, which is up on post's previous forecast. This forecast, if achieved will easily surpass the previous record of 13.4 million hectares planted in 2004-05.

Early indications for 2010-11 wheat crop, which is yet to be planted, points towards a marked decline in planted area. Lower prices, combined with replenished inventories, are likely to see an increase in the area planted to break crops such as pulses and oilseeds. The area required for livestock production is also expected to increase, albeit marginally, as post expects growth in these sectors to be gradual.

Total exports for 2009-10 are forecast at 15 million tonnes, up on the revised estimate for the previous year. Increased production and limited growth in domestic consumption pushed exports higher in 2009-10. Export returns are expected to fall however, due to low world prices and the strong Australian dollar.

Post advises that above-average production levels in 2008-09 and 2009-10 have increased ending inventories somewhat, following record low levels created by severe and long running drought. Replenished stocks and improved production are also expected to provide some upside potential for exports in 2009-10.

Since deregulation of Australian wheat exports in July 2008, containerised (and bagged) exports of wheat have grown in volume and importance. Previously, all containerised exports of wheat from Australia required consent from a statutory federal authority, and for a time, AWB Ltd (Australia's monopoly wheat exporter) was consulted as part of the approval process.

Such legislation was criticised by would-be exporters as an unnecessary constraint. Containerised wheat exports increased over 7% in 2008-09 to 2.36 million tonnes (October-September). Despite this growth, containerised exports continue to be dwarfed by bulk exports which reached 14.45 million tonnes in the same period according to recently published ABARE data.

The transport cost differential between containers and bulk reached an all-time low during this period and industry sources suggest that a return to normal container transport costs will likely see this growth in this trade somewhat constrained in 2009-10. According to official trade data for 2008-09, containerised wheat exports are particularly important in maintaining and developing certain markets. Export markets such as Vietnam, Taiwan and Myanmar all receive more Australian wheat in containers and bags than in bulk. Indonesia, Malaysia and Thailand also receive significant quantities of Australian wheat in containers and bags.
 

Industry sources indicate that containerised wheat exports are suited to smaller and developing markets which lack the infrastructure and credit facilities to buy bulk shipments of wheat. Recent regional travel undertaken by post revealed the strengths of the containerised wheat trade. Since deregulation of wheat marketing in July 2008, smaller regional buyers of Australian wheat have successfully used containerisation of wheat to gain a foothold in the export market (although, some of these small organisations were exporting with permits prior to deregulation). Containers have proven easy to load in remote regional locations, and the premium they attract from export customers allows for higher transport costs to port from regional locations.