February 21, 2007

 

Australian grain market tight but imports unlikely
 

 

Grain imports into Australia remain unlikely, despite a sharp downturn in production from summer crops, chiefly sorghum and cottonseed, the general manager trading at ABB Grain Ltd. said Wednesday.

 

While grain prices in the domestic market are better than returns from exporting, they are still not at high enough levels to make importing worthwhile, Peter Jones said.

 

"We're seeing in most regions prices that are above those achievable on the export market," he said by telephone. "But we're probably not yet at levels where we would see large-scale imports of grain. Domestic prices aren't at a level where imports are palatable, at this stage."

 

His comments came after the government's Australian Bureau of Agricultural and Resource Economics (Abare) Tuesday forecast that production of sorghum, the main summer feedgrain, will fall to one million tonnes from two million tonnes last year, while cottonseed output, the other major summer feedgrain, will slump to 354,000 tonnes from an actual 844,000 tonnes due to drought.

 

ABB Grain was not surprised at Abare's forecasts, which would further tighten the east coast grain market, he said.

 

Abare also estimated that the production of winter grains, mostly wheat and barley, this crop year ending Mar 31 would slump to 15.7 million tonnes from an actual 40.8 million tonnes previously.

 

Abare's forecasts sparked comments about whether domestic supplies can meet demand or whether imports will be needed. Grain was imported on a large scale for only the second time in Australia's history after domestic production slumped in 2002 in the face of severe drought. Summer crop production after the 2002 drought was higher than what Abare expects now.

 

"There is a supply issue on the east coast of Australia, though there is enough grain in Australia to satisfy demand", Jones said.

 

Western Australian-based Cooperative Bulk Handling Ltd. confirmed Tuesday two cargoes totalling about 32,000 tonnes have been shipped to the east coast, and it was keeping an eye on the market.

 

Jones said ABB Grain also has sent grain east, encouraged by high prices, without providing further details.

 

AWB Ltd. has also diverted grain to the domestic market from exports.

 

The longer southern Australian markets go without either pasture growth or the expectation of a reasonable crop at the end of 2007, the tighter the market becomes, Jones said.

 

"Imported grain is still a very expensive option compared to where the market is currently," he commented, adding that there is still upside price potential in the domestic market.

 

Old crop Australian Premium White grade delivered Melbourne is quoted about A$295/tonne (about US$232.78/tonne), well down from A$225/tonne quoted for the same grade from the crop to be harvested around November and December, he said.

 

AWB has an estimated pool return, most of which is exported, on that grade at A$242/tonne gross.

 

People holding grain will be wondering whether to sell it now or wait for an even higher price, Jones said.

 

Either way, they would not want to carry old crop into a new crop market, or when such a market looks more than likely to be well supplied, he added.