November 24, 2011
Challenges confront Australian wheat exports
Australia's wheat exporters may face challenges to sell its near record harvest as the forecast of weather is unfavourable which may lead to crop quality concern, according to CBH Group.
"It is going to be a challenging year to market it," said Tom Puddy, head of grain marketing at CBH, Western Australia's largest grain handler. "We are going to have a larger percentage of lower-grade wheat because of the weather damage to it."
Rain delayed harvesting after wet weather in September and October boosted optimism the nation may produce a second straight bumper crop. Harvest delays in Australia and shrinking US supplies have sent the premium for spring wheat traded in Minneapolis to a three year high over winter crops in Kansas City. Supplies from Australia compete with the high-protein variety traded in Minneapolis, according to Louise Gartner at Spectrum Commodities.
Western Australia's harvest is one month behind schedule and 20% to 30% of the crop may be downgraded, according to CBH. "The worst case scenario is it continues to rain," Puddy said by phone from Perth. "Ultimately, an even bigger percentage of the crop not harvested is further downgraded that 30% becomes 50% or it goes to 60% of the crop that is damaged."
Australia produced a record 26.3 million tonnes last season, according to a government estimate, as La Nina-linked rains that boosted yields on the east coast cut the quality from milling standard to feed grade. This year's harvest may total 26.2 million tonnes, the Australian Bureau of Agricultural and Resource Economics and Sciences forecast September 13. Exports may reach a record 20.4 million tonnes, it said.
Western Australia's main grain-growing region, known as the Wheatbelt, has a 60% to 75% chance of receiving above-median rainfall from December to February, the Bureau of Meteorology said yesterday. Regions in the country's east and south have a 35% to 75% chance, it said. "The crop's ready to come off, the farmers have seen enough rain, they just want to get into the harvest now," Puddy said yesterday. "As the weeks go by, if we see more rain then there'll be more reports of quality concerns coming out."
Storms that are disrupting harvest activities in New South Wales and Victoria are not affecting grain quality, GrainCorp Ltd. (GNC), eastern Australia's largest grain handler, said yesterday. Minor rainfall in South Australia is not likely to have affected crop quality, Viterra Inc.'s Adelaide-based unit (VTA) said yesterday.
Spring wheat for March delivery on the Minneapolis Grain Exchange fetched US$1.74 more per bushel today than the hard, red winter variety on the Kansas City Board of Trade. The gap may widen to US$2.50 this year, the biggest for March contracts since prices reached a record in 2008, according to Gartner. Futures in Minneapolis gained 0.2% to US$8.39 a bushel. While prospects for US winter-wheat crops improved, production of the spring crop dropped this year to 455.2 million bushels, the lowest since 2002, government data show.
"It's really the markets that require the higher-protein profile, like 10% and above, they're the markets that we'll struggle to supply large volumes to," Puddy said. Countries including Iraq, South Africa, Sudan and Indonesia may look to replace Australian wheat with supplies from Canada, the US or Argentina, he said.
Global stockpiles will be 202 million tonnes at the end of the 2011-2012 marketing year, the highest level in a decade, the International Grains Council said October 27. World harvests will increase 5% to 684 million tonnes as consumption drops to 677 million tonnes, it said.
"There's a shortage of high quality wheat available globally but there's an abundance of low-protein wheat," said Puddy. "It may just take a bit longer to sell it in the market. It could be a 12 month to a 16 month program of trading out this season's stock, compared to a 12 month programme."
Russia is emerging as the second-largest wheat shipper, with exports forecast at 20 million tonnes, exceeding Australia's shipments of 18.5 million tonnes, according to data from the International Grains Council.