August 16, 2010

 

Australia well-positioned to increase wheat exports

 

 

Australia is set to boost wheat shipments as global supplies are affected by a severe drought in the Black Sea region, according to analysts and traders.

 

Wheat inventories in the world's fourth-largest exporter of the grain are seen at around five million tonnes at the end of the marketing year to September 2011, about one million tonnes more than a year ago following two years of good harvests, they said.

 

However, there is a danger stocks could fall below current estimates as consumers in Asia and the Middle East scramble for supplies following the drought in the Black Sea region, a key supplier to the Middle East and southeast Asian markets.

 

On Thursday (Aug 12), the USDA cut its estimate of Russia's crop to 45 million tonnes, down 15% from its earlier estimate, cut the Kazakhstan estimate by 18%, to 11.5 million tonnes, and Ukraine by 15%, to 17 million tonnes.

 

The shortfalls in Black Sea output had triggered more inquiries for Australian wheat, said Chris Kochanski, a grain trader at Emerald Group, half owned by Japan's Sumitomo.

 

"We haven't been successful with the last few Iraqi tenders, which is always a good benchmark, but I think that will turn around," said Kochanski.

 

In Asia, he said there had been an increase in demand for containerised shipments to countries such as Vietnam.

 

"Back two months ago, a lot of Asia was fairly bearish and only going hand-to-mouth so there is a bit of pent up demand, especially for prompt wheat now with Russia withdrawing from that space," said Kochanski.

 

He said Australian stocks by September 30 were likely to be lower than the five million tonnes suggested only two months ago and compared with around four million a year earlier.

 

This year's stock build-up follows two good harvests of more than 21 million tonnes after the crop was cut to 13 million in 2007/08 because of drought. Australia usually starts harvesting wheat in late September.

 

Australia could export more than 18 million tonnes in 2009/10, nearly 30% more than a year earlier. Shipments from October to July totalled 11.3 million tonnes versus 10.2 million for the same period a year ago, official data showed.

 

Malcolm Bartholomaeus, a market analyst for Callum Downs Commodity News, also said Australia was well placed to make up for the Black Sea shortfall, which might see Australia's wheat stocks fall from his current estimate of 5.6 million tonnes.

 

"The pace of exports is going to have to lift over what we've had over the last three months if we're going to end the marketing year with less than five million tonnes," he said.

 

He noted a risk that shipping constraints may curb any the uplift in exports despite rising demand, with most available wheat stored in South and Western Australian terminals.

 

Commonwealth Bank of Australia agricultural strategist Luke Mathews expects shipments to pick up, though he does not see a big downward adjustment of his estimate of around five million tonnes of stocks in the bulk system at September 30.

 

Mathews said exports were likely to rise in the October-November period before the 2010/11 Australia wheat harvest cranks up.