August 29, 2007

 

Australia analyst notes rising concern over winter wheat crop
 

 

Concerns are rising about prospects for the new Australian wheat crop given the lack of rain in some areas, Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, said Wednesday (Aug 29).

 

Production estimates for now remain mostly in a range of 20-22 million tonnes, but confidence has fallen "quite a bit," and the forecast is under greater risk than a month ago and could yet "drop into the teens," he said by telephone.

 

After a domestic wheat market of about 6-7 million tonnes is satisfied, the balance of Australia's wheat is available for export into a tight, highly-priced global market.

 

Gorey has been tracking concerns about development of the domestic crop through a differential between Australian-US dollar-based swaps between the Australian Stock Exchange's January 2008 milling wheat futures and the Chicago Board of Trade December 2007 contract, a measure he has dubbed the Australian Harvest Basis.

 

Several weeks ago, the Australian contract traded at a A$20 discount to CBOT, about as wide as it got over the past three years at the times when Australia was looking at a big crop, but now is trading at near a A$20 premium, "a big swing that is testament to just how rapidly the worry about Australian crops has grown," he said.

 

Industry concerns also are playing out in trading of ASX January 2008 futures, the most active domestic milling wheat contract, which traded early Wednesday at A$343/tonne, down A$6/tonne from Tuesday's close, but still 60 percent higher than a low of A$215/tonne early in April.

 

Gorey said rain of at least 25 millimetres in the past two weeks in northern New South Wales and southern Queensland wheat lands has helped buttress industry estimates.

 

In wheat lands through south-east Australia, satellite moisture readings on Aug 27 show "adequate to marginal" moisture levels, he said.

 

But rain is needed soon because when the weather warms up, crops grow faster and use more soil moisture, which is also depleted through increased evaporation, he added.

 

As time passes without heavy rain in the south-east and days lengthen, "there's a question mark now that wasn't there before," Gorey commented.

 

Gorey described crop conditions in South Australia, particularly in the usually marginal western areas, as looking "ordinary" or quite poor.

 

Bureau of Meteorology data show most areas in south-east Australia and South Australia received less than 25 millimetres so far this month to Aug 29, with many areas receiving less than 10 millimetres.

 

A$1=US$0.8134 (Aug 29)