Smaller Aussie wheat crop may not lift prices

Analysts say that the big crops expected in the United States and Canada could offset the reduction in Australia

Australia’s wheat crop is shrinking and that should create good marketing opportunities for Canada’s spring wheat crop, says an analyst.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is forecasting 19.1 million tonnes of production, down 10 percent from its previous estimate.

That would be the third consecutive disappointing harvest for Australia.

The biggest decline from the ABARES June estimate was in New South Wales, where the crop is now forecast at 3.19 million tonnes, down from 4.75 million tonnes.

That is where the bulk of Australian prime hard wheat is grown. It is the type of wheat that competes with Canadian hard red spring wheat in lucrative Asian markets like Japan.

“When they run short that is positive for our marketing into those areas because a competitor is gone,” said Bruce Burnett, analyst with MarketsFarm.

“The demand structure for spring wheat given this Australian drought looks good for exports to continue on a strong basis.”

Unfortunately, he doesn’t think Australia’s poor crop will be enough to ignite a rally in spring wheat prices.

That is partially because there are big crops on the way in Canada and the United States.

The U.S. Department of Agriculture is forecasting 15.4 million tonnes of hard red spring wheat, which would be the fourth largest crop in the last three decades.

Statistics Canada is forecasting 25.1 million tonnes, the second biggest crop in three decades. Burnett thinks it could be larger than that if the weather co-operates.

But the bigger issue is the overall glut of world wheat supplies.

“By itself (spring wheat) is not tight enough to create the potential for a huge rally away from the other wheat classes,” said Burnett.

Early harvest samples out of North Dakota and Montana indicate it will be a good quality crop with average to above average protein levels, although there is still a lot of wheat in the fields, which is unusual for this time of year.

Very little of Canada’s spring wheat crop is in the bin. The weather in the coming weeks will determine the quality of this year’s harvest. Burnett is more concerned about rain than frost.

“We really need to see the weather straighten out and get some sunny conditions and drier weather,” he said.

Australia’s prime hard wheat yields are likely already established. The crop has a couple of weeks to fill before being combined during the first half of October.

The crop in Western Australia is what he will be watching. It performed well last year, helping to rescue dismal wheat crops in New South Wales, Victoria and South Australia.

But this year it is dry in Western Australia and the forecast is for more of the same.

“There is a good possibility that we might even see (an Australian) crop that is smaller than last year’s,” said Burnett.

Either way, it will be the third disappointing harvest in a row and that has a cumulative effect on exports and even imports.

“We saw them import some Canadian wheat this year, which is exceptional,” he said.

Canada doesn’t compete directly with the wheat produced in Western Australia, South Australia and Victoria but if exports of those types of wheat are down, it should also help boost Canadian prospects in Asia.

The other thing for Canadian growers to keep an eye on is a possible corn price rally. He thinks USDA production estimates will drop in its October and November reports.

That will increase corn and feed wheat prices and should also buoy spring wheat prices, said Burnett.

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