Australian wheat harvest puts pressure on global prices

The harvest of a big Australian wheat crop, which is about to start in earnest, is one factor putting downward pressure on global prices though a weaker Australian dollar is moderating the impact in local currency terms, said Mitch Morison, a general manager at agribusiness AWB Ltd's (AWB.AU) Australian commodity division on Monday, 13 October 2008.

Morison said in a statement wheat from the European Union and the Black Sea region continues to aggressively compete for business and with a large Australian harvest soon to be available for export on top of this, prices are under pressure.

AWB didn't issue a production estimate, with most forecasts for the crop to be harvested by year-end ranging between 19 million and 23 million tonnes. After annual domestic demand of about 7 million tonnes is met, this leaves the balance available for export.

Morison was commenting after AWB held unchanged its estimated gross return on its eastern pool for benchmark Australian Premium white grade wheat of 10.5 percent protein, at A$326 (US$229) a tonne, free on board, while the return on that grade for the western pool was increased A$5 (US$3.50) to A$323 / tonne (US$227)/tonne.

The weakness in the Australian dollar has been beneficial; protecting growers since the previous review of pool estimates two weeks ago as wheat futures in Chicago fell by more than 10 percent in the same period said Morison.

AWB has begun managing the pool's commodity and foreign exchange exposure, with the amounts under management to increase as physical deliveries are made, following strong interest shown by growers in a A$10 / tonne (US$7 / tonne) premium on any return for the early commitment of grain to the collective sales pools.

AWB deducts upcountry storage, handling, transport and servicing fees generally amounting to around A$40 / tonne (US$28/tonne) from gross returns before distributing net returns to pool participants.