February 21, 2012

Australia's wheat demand set to climb

Rising feed demand may shore up Australia's wheat consumption by about a third this year, drawing down ending stock levels despite a bumper harvest, an industry source said Monday (Feb 20).

Consumption of wheat, which usually totals around six million tonnes, could reach seven million or even eight million tonnes in the year that started October 1, said Alan Winney, chairman of Australia's fifth-largest wheat exporter by volume, Emerald Group.

Domestic wheat is replacing barley and sorghum in Australian animal feed, as domestic and global prices for the latter two grains rise, Winney told Dow Jones Newswires.

Australia is a major supplier of sorghum to East Asian countries, including Japan and South Korea. Winney said most of the country's sorghum exports will be shipped out of Queensland, where port berths are relatively less congested for wheat shipments.

Ending grain stocks in 2011-12 will probably exceed 10 million tonnes, Winney said, noting that the breakdown of inventories by grain will depend on prices and Australia's ability to export bumper crops in the face of ports that are already operating at peak potential.

Australia's wheat stocks alone were close to nine million tonnes on October 1, official data showed.

Near-month wheat futures on the Chicago Board of Trade will mostly move between US$5.50-$7.00/bushel until July and will subsequently hinge of the size of harvests in the Northern Hemisphere, where there is a concern about a severe winter that lacked adequate snow cover, damaging crops, Winney said. The near-month March CBOT contract settled Friday at US$6.44/bushel.

Australian exporters will be under pressure to ship out more wheat in the July-September quarter, ahead of the next harvest in October amid competition from the Black Sea region, but even if they reduce prices, shipments will be constrained by logistics, Winney said.