April 21, 2006

 

High wheat prices could help new Australian crop

 

Australian wheat farmers have not yet begun to plant new crops in earnest, but already bumper production of possibly even more than 24 million tonnes is being forecast.

 

Farmers have been watching crude oil prices rise with trepidation as they hit record levels this week, given a consequent flow-on to fuel, fertiliser and crop chemical costs, but relatively strong wheat prices are spurring interest in the coming crop, they say.

 

Combine that with a benign rainfall outlook that points to average rains in the critical winter wheat planting period May through July, and Murray Jones, president of grower lobby the Grains Council of Australia, conceded Friday there is room for optimism.

 

The three-month rainfall outlook issued Friday (Apr 21) "is all farmers are looking for" after what for some have been several years of drought-affected production, he said.

 

"Prices are looking a lot firmer, so I am confident," he told Dow Jones Newswires, adding that wheat production this crop year in a range of 24 million to 24.5 million tonnes looks to be "a realistic figure."

 

This is in line with the latest forecast by the USDA, which predicted a crop of 24 million tonnes, and by the Australian Bureau of Agricultural & Resource Economics of 24.5 million tonnes.

 

Output last crop year ended Mar 31, 2006, reached 25.1 million tonnes, but only after many growers in Southeast Australia suffered some agonisingly dry periods during the winter.

 

The USDA said 24 million tonnes now represents an average size crop in Australia, even though ABARE's historical data shows it would be the fifth largest crop on record. Seven of the past 10 crops have fallen within a 22 million to 26 million tonne range.

 

Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, agrees that relatively strong wheat prices at the moment could encourage big plantings.

 

"Prices have reached attractive levels," he said, even though it is way too early in the year to make judgments.

 

Gorey said the high cost of fuel has been an ongoing issue for Australian farmers for several years.

 

But if farm costs rise, then returns ultimately will also have to rise, though that is unlikely to be in a straight line, he said.

 

If the costs of producing wheat rise because of higher fuel costs, then people wanting to consume this much wheat and grain will have to pay for it, he said.

 

"People have to make money to stay in these businesses," he said.