Grain industry officials in North America say Australian wheat is being sold at bargain basement prices, creating a competitive environment in Asian wheat markets.
Industry officials and market watchers in North America say Australia’s aggressive sales are driving down prices for lower quality wheat and depressing the corn market.
“What they’re doing right now is trying to market a lot of grain very rapidly, and that is creating pressure on the price,” said Bruce Burnett, director of market analysis for the Canadian Wheat Board.
“Certainly they’re having an influence on some of our markets.”
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The situation is bad enough that the board is considering shifting some of its sales to other markets where the Australians don’t have the same impact on price, he said.
U.S. wheat industry officials concurred with the board’s view.
“That certainly squares with what I’ve been hearing,” said Mike Woolverton, grain market economist at Kansas State University.
His take on the situation is that Australia is trying to deal with the substantial amount of low quality wheat it produced this year.
“They’re not discounting high quality wheat,” he said. “I think they’re trying to get rid of their feed wheat and in the process they’re absolutely killing the corn market.”
He added some buyers might take the lower quality Aussie wheat with an eye to blending it with higher quality to make bread.
Australia produced about 20 million tonnes of wheat this year, rebounding from two consecutive drought years that produced crops of 13 and 11 million tonnes.
This is also the first year in which wheat is being sold on the open market following the elimination of the Australian Wheat Board’s export monopoly.
There are about 19 exporters competing to sell Australian wheat, including big multinationals like Louis Dreyfus, Bunge and Cargill.
Some analysts say that could be contributing to a race to the bottom for prices.
“That could be an explanation for the aggressiveness that we have not seen in the past from the Australian Wheat Board,” said Woolverton.
He noted private grain companies make their money off volume and handling margins, and the selling price is largely irrelevant.
“I used to work for Cargill and the name of that game is volume,” he said.
Burnett said it’s hard to judge how the old single desk AWB would have marketed this year’s crop, but there’s no doubt that the new open market system has a more aggressive approach.
Once Australia runs through its low quality wheat supplies, things should settle down.
“After the first of the year I think we’re going to see an emergence of the global market for quality milling wheat and a strengthening of wheat prices,” said Woolverton.
