August 5, 2024

Australian wheat production boosted by rainfall, but Chinese demand may lag

Rainfall across much of Australia has improved the outlook for the country's 2024/25 wheat production, although demand from China may remain weak, according to analysts and traders, Reuters reported.

As the world's fourth-largest wheat exporter, Australia could see a larger harvest, adding pressure on prices already at their lowest since 2020 due to abundant global supply. Earlier in the season, cropping zones in western and southern Australia were very dry when farmers planted seeds in May and June. However, rain has since fallen in most areas, improving the prospects for wheat production.

"The wheat crop is on track for 30 million metric tonnes," said Stefan Meyer, head of a grains trading team at brokers StoneX, at the Australian Grains Industry Conference in Melbourne. "It's had a massive turnaround. A while ago, I was thinking closer to 25 million tonnes."

Australia produced 26 million tonnes of wheat in 2023/24, a relatively dry year, and 40.5 million tonnes in the much wetter 2022/23 season, according to government data. Despite the recent rainfall, root zone soil moisture remains low in parts of Victoria, South Australia, and Western Australia, leaving those areas vulnerable if rain does not continue.

"There's probably a slight downside risk from 30 million tonnes," noted Tim Crowe, head of Asian wheat and barley research at trader Louis Dreyfus. He also identified low Chinese demand as the biggest risk for Australia, commenting, "Record imports have been going on in the last few years, but they could drop off drastically." Crowe pointed out that there is no replacement market for China, which could significantly impact Australian prices at harvest.

Adam Clarke, director of brokers AC Grain, reported that, to his knowledge, Australia had not sold any new-crop wheat to China.

Many farmers and analysts expect a La Niña weather event to develop later this year, bringing wetter conditions to eastern Australia. However, Crowe suggested that this is now unlikely. The absence of La Nina would reduce the risk of rainfall during the harvest, which begins in October, negatively affecting the quality of Australian wheat.

-      Reuters