May 25, 2012

 

Wheat price recovery stirs Australian export capability

 

 

Wheat price revival has raised concerns on the capability of Australia to attain record exports of more than 20 million tonnes this season, by enhancing corn's competitiveness as an alternative livestock feed.

 

Wheat exports from the southern hemisphere's top shipper topped 11 million tonnes in the first six months of the 2011-12 marketing year, which in Australia begins in October, Australia & New Zealand Bank (ANZ).

 

Continued shipments at this pace would keep the country on track to hit the 22 million tonnes that the USDA foresees for the season.

 

However, ANZ warned that even its own target, of 21 million tonnes, was being challenged by the appreciation in wheat prices, which on the Sydney futures market remain more than 10% above levels before Black Sea dryness sent values soaring worldwide last week.

 

In Chicago, wheat, which has spent much of the last year at a discount to corn, has opened up a premium of some US$0.70 a bushel to its fellow grain, comparing July contracts.

 

The implications have been felt in Australia too, despite some protection to export competitiveness from the continued decline in the Australian dollar, which fell on Wednesday (May 23) for its lowest against the US dollar for nearly six months.

 

"Australian premium wheat track prices in Western Australia have jumped US$24 a tonne in the past week, while three-month US Gulf corn prices, free on board, have only risen by US$13 a tonne,"  ANZ analyst Paul Deane said.

 

"Corn has started to price competitively into animal feed rations over the last month in parts of Asia," a major customer of Australian wheat.

 

ANZ said its forecast of 8m tonnes of exports from Western Australia, the top Australian wheat growing state, in 2011-12 looked most at risk.

 

"Western Australia only exported 3.7 million tonnes in the first (October-to-March) half, requiring a faster export pace in the second half" to meet expectations.

 

"But a slowdown in sales of lower protein wheat in the last quarter of 2011-12 may curb exports."

 

In eastern Australia, GrainCorp on Tuesday revealed it had achieved record exports of five million tonnes of overall grains in the October-to-March period, and raised to 10m tonnes, from 8.8-9.8 million tonnes, its forecast for shipments in the current April-to-September half.

 

Indeed, the record volume of Australia's exports, of more than 16 million tonnes, of winter crops including rapeseed the October-to-March half has eased concerns over the ability of the country's rail network to deal with bumper supplies.

 

Official data on Tuesday showed Australia had, into April, made further headway in shipping the unusually large quantities of feed wheat in store, a legacy from harvest-time rains in 2010 and, to a lesser extent, last year.

 

The proportion of feed wheat held by bulk handlers, at 5.89m tonnes at the end of last month, represented 31.1% of the total wheat inventory.

 

That compared with nearly one-half at the close of 2010-11, but remained well above a level of close to 10% at the end of the season before.

 

The data showed bulk handers stores declining by 2.34 million tonnes, beating the 2.31-million-tonne decline in February, which was the largest drop since at least 2008, and implying another bumper month for exports.