December 29, 2008


Australia's grain producers to adjust to deregulated wheat market

The 2008-09 season has been a turbulent year for Australia's wheat market, which has been recently deregulated on top of several obstacles, but the industry is tipped to work things through.


The market has faced droughts, harvest rains, falling wheat prices, shortage of contract harvesters, massive stockpiling by grain producers, as well as a recently deregulated wheat export market.


Monopoly was removed from Australia's wheat export market, and so far 20 wheat exporters have been accredited. Uncertain what this would lead to, producers warehoused their grain. Some estimates said 60-70 percent of the crop have been warehoused, with most of it in bulk-handler silos.


However, the producers eventually sold their crop and Western Australia's grain company, Co-operative Bulk Handling (CBH), shipped its first wheat consignments to Indonesia on November 9.


Multinational wheat giants Cargill and Louis Dreyfus would be next to export Australian wheat, followed by Glencore, Elders Toepfer, as well as Australia's four grain exporters, CBH's Grain Pool, ABB, GrainCorp and AWB.


Market analyst Malcolm Bartholomaeus said Australian grain prices usually correlated with Chicago prices, but instead of being US$10 per tonne lower this year, Australia's prices fell as much as US$50 per tonne, priced off the cheaper Argentinean and Baltic Sea wheat.


Bartholomaeus said farmers are holding their stocks for price increases, as they expect prices to rise once Argentina's wheat was sold.

Although this has been a difficult year, but some producers will be sharper and much better equipped for future challenges after this year's experiences, according to Bartholomaeus.


This year, the dry spring ripened the southern crops earlier than usual. Several years of drought had reduced the number of contract harvesters and when the whole crop was ready at the same time, farmers could not get the harvesters, said John Eastburn, chairman of the Grain Growers Association.


Eastburn estimated that 55-60 percent of the northern crop had not been harvested when the rains came.


About 1.5-2 million tonnes of wheat was also downgraded due to rain damage, causing a loss of over US$120 million.


Stuart Richardson, general manager of Australian commodities with AWB, do not think a large supply of feed wheat and sorghum crop will be a problem as there is a large domestic stock feed market on the east coast.


The producers' marketing decisions had been delayed due to harvest rainfalls, and AWB were able to purchase the wheat it needed to fill its contracts, said Richardson.


Richard Clark, chairman of the NSW Farmers Association grains committee, said this is a bad year to deregulate the market, as a complex harvest showed that the industry was not ready for the move which has "turned into a logistics shambles".


Clark was also critical of the storage and handling systems, the slow start to the shipping programme and the low prices.



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