Australia wheat struggles to compete as dryness cuts output

SINGAPORE, Sept 21 (Reuters) – Australian wheat prices have risen above offers being made for U.S. cargoes in Asia, a rare market situation that is expected to drive more purchases from North America, two trade sources said.

Australian wheat exporters have made little progress in selling new-crop wheat into Asia this year as the smallest crop in eight years is forcing farmers to hold back supplies, lifting prices above the international market.

“Earlier Australia faced competition from the cheaper producers, Russia and Ukraine, but now U.S. is offering competitive prices,” said a Singapore-based trader who sells wheat into Asia.

The new-crop Australian Standard White wheat was quoted this week at $245 a tonne, including cost and freight (C&F), into Southeast Asia, the sources said. The country is one of the world’s main exporters of the grain.

That compares with U.S. wheat of similar quality being offered at $235 a tonne C&F, while wheat from the Black Sea region is selling at $215 a tonne.

Chicago wheat futures have been trading around one-month highs on short-covering and amid lower production in Australia due to dry weather and Argentina because of excessive rains.

“At this time of the year, it very rare to see Australian prices being offered higher than the U.S.,” said a second trader in Singapore. Both traders declined to be identified as they were not authorised to speak with media.

Australia’s government last week cut its estimate of the country’s 2017/18 harvest to 21.64 million tonnes, the lowest in eight years and sharply below last year’s record 35.13 million tonnes.

But globally there are abundant supplies.

Russia will produce a record 81 million tonnes in the year to June 2018 and Ukraine is set for a third consecutive bumper crop, according to U.S. Department of Agriculture data (USDA).

The USDA in its latest monthly supply-demand report reduced world inventories slightly to 263.14 million tonnes at the end of the crop year in June 2018, from its August forecast of 264.69 million tonnes, taking into account crop losses in Australia and Argentina.

Despite the reduction, global stocks will still be at an all-time high.

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