February 14, 2005

 

 

Low prices may dent Australia's 2005 wheat crop

 

Australia's wheat production next crop year could fall sharply if current low world prices continue, Keith Perrett, president of grower lobby Grains Council of Australia, said Friday.

 

As a result, with the current strong cattle market underpinned by a robust outlook, many producers might opt to move into beef production and away from grains and wheat, he said.

 

Under the influence of a poor season in many areas, Australian wheat production is expected to slump to about 20 million metric tons this crop year ending March 31 from a record 25 million tons last crop year.

 

Australia is a major global wheat supplier through bulk export monopoly AWB Ltd., which sells the balance of the crop after domestic demand of about 5 million tons is met.

 

"I can't see production in Australia increasing" next crop year, said Perrett.

 

If Perrett's outlook comes to pass, companies serving the Australian grains industry could face a sharp downturn in throughput, with a consequent impact on revenue and profits.

 

This would include AWB, and logistics and marketing concerns GrainCorp Ltd. and ABB Grain Ltd.

 

Perrett was commenting after AWB this week issued a relatively low initial estimate of returns for the 2005-06 crop, despite a modest improvement expected in the market.

 

The low estimate reflects the impact of a 30% slide in Chicago wheat futures since April, the product of a big global wheat surplus in 2004.

 

AWB issues an early estimate of gross returns to enable growers to make cropping decisions.

 

AWB estimates its benchmark Australian Premium White type wheat of 10% protein grown next crop year will fetch a price in the range of A$170-A$180 a metric ton free on board and exclusive of a 10% goods and services tax.

 

AWB estimates its benchmark new crop Australian Premium White type wheat of 10% protein produced this crop year will return A$197/ton for the No. 1 pool.

 

The 2003-04 crop fetched a price of A$228/ton and the 2002-03 crop A$258/ton.

 

The estimate for 2005-06 is a gross price, from which freight, handling and other charges of between A$40-A$50/ton must be deducted.

 

Conservative Forecast Could Dent Planting Interest

 

Perrett was despondent about the impact of these price estimates on growers and production.

 

"At those sort of price levels, if growers plant wheat, they're planting wheat on hopes that the market's going to kick," he said.

 

"The majority of wheat growers can't make money at those prices, it's as simple as that."

 

"You may as well give up. You walk away from it."

 

Growers would have to be assured of high yields - always an impossible guarantee in drought-prone Australia - to return anywhere near their costs at those low prices, he said.

 

"You aren't going to go out and spend all the money to put in a crop, fertilizer and everything else, and put all that at risk for those sorts of returns."

 

"It's not worth the risk in my mind at those prices."

 

That said, growers will still plant wheat, as they are locked into crop rotations and have major investments in cropping machinery.

 

He didn't issue a production estimate.

 

The Australian Bureau of Agricultural and Resource Economics will issue a crop estimate in early March.