February 26, 2009

Australian growers could market the wheat they are currently warehousing on farms and elsewhere in autumn as the fate of new northern hemisphere crops become clearer, according to market participants.

Growers know there is some seasonality in world wheat prices, which more often than not rise March through May, so many farmers are holding stocks to see what happens, Mark Martin, a risk management adviser and director at commodity manager MarketAg, said this week.

"We just know from our client base (that) there are considerable stocks still and they're looking to hold onto it for some time," he told Dow Jones in an interview this week. "There's a lot of grain sitting in the warehouse, absolutely."

 

The Australia harvest, which finished in January, produced 21.4 million tonnes, up 65 percent from 13 million tonnes for the previous crop. With an annual domestic demand of around 7 million tonnes, the 2008-09 harvest leaves an exportable surplus of nearly 15 million tonnes, valued well in excess of A$4 billion.

 

Most of the exportable surplus, probably almost 9 million tonnes, is in Western Australia, with the balance in South Australia, Queensland and northern New South Wales. Drought reduced production in Victoria and southern New South Wales, likely leaving relatively little wheat available for export from those areas.

 

Eastern Australia storage provider GrainCorp Ltd. (GNC.AU) has reported the percentage of wheat being warehoused by growers who deliver to the company's upcountry system has fallen to around 15 percent now from more than 90 percent in early January.

 

Anecdotal reports suggest there are considerable quantities still being held on-farm, Matt Holgate, a regional network manager at agribusiness AWB Ltd. (AWB.AU) reported Thursday in The Land weekly newspaper.

 

Grain held on-farm presents quite a challenge for the industry because of unknown volume and quality, he said.

 

Growers in Australia and in many parts of the world are holding onto their grain and are reluctant sellers, he said.

 

"All have reacted to the drop in prices from a year ago and are hoping that by holding out of the market, they can push prices up. In a world where timing is everything, the decision to pull grain out of storage could be very important," he wrote in a weekly report.

 

"The feeling in the trade is when Northern Hemisphere growers see their next crop being assured, they will dump whatever they are holding onto the market to free up storage space," he added.

 

In Europe and North America, crop prospects will become clearer in March and April, he said.

 

MarketAg's Martin believes there also are other factors affecting growers in eastern Australia, including warehoused grain acting as a financial buffer in the event rains fail again in 2009.

 

"If the new season looks like there'll be a reasonable crop, you'll see more supply, but if the new season looks a bit tough, there'll be some reluctance from growers to let old stock go," he said.