Aussie wheat wreck to boost prices

A menu board at the Old Fitzroy Hotel in Sydney, Australia, displays the slogan “Parma for a Farmer,” indicating that the proceeds from sales of parmagiana will go to farmers suffering from drought this year. The extremely dry conditions in eastern Australia are expected to significantly curtail the country’s export potential.  |   REUTERS/David Gray photo

Drought is expected to reduce the country’s winter crop to 28.22 million tonnes, 31 percent below the 10-year average

One of Canada’s main rivals in the grain export business is having a wretched year and that will likely lead to increased demand and higher prices for Canadian crops, says an analyst.

The Australian Department of Agriculture and Water Resources (ABARES) forecasts a total winter crop of 28.22 million tonnes.

That would be the smallest crop since 2007-08 and 31 percent below the previous 10-year average.

Eastern Australia’s growing season rainfall was 40 percent below the previous 20-year average. Conditions were much better in the west where crop production is expected to be above-average.

Neil Townsend, senior market analyst with FarmLink Marketing Solutions, believes Australia’s woes will eventually lead to firmer prices in Western Canada, especially for wheat.

“We anticipate the next big marketing opportunity to be for February/March/April delivery,” he said.

“Prices might start to show some strength in late-December or January for those periods.”

Townsend noted that Australia’s 2017-18 crop was also smaller than average, depleting carryout stocks.

The 2018-19 Australian wheat crop is estimated at 16.9 million tonnes, down 13 percent from last year. Production was good in the west but that is low-protein wheat. The drought-reduced crop in the east is the one that competes with Canadian spring wheat.

Townsend said Canada will likely pick up additional business in some of Australia’s traditional markets like Indonesia, Japan and South Korea.

Russia has been exporting wheat “like gangbusters” and he forecasts that it will be out of the market by mid-December.

With the absence of Australia and Russia, Canada should pick up about 700,000 tonnes of demand in Latin America and another one to 1.5 million tonnes in Asia.

“I think we’re going to see steady appreciation of wheat prices through the year,” said Townsend.

“Wheat requires patience. It requires a little bit of grit and determination.”

He believes wheat prices should appreciate by up to 75 cents a bushel, but he doesn’t think they will increase by that much because when opportunities like this present themselves, grain companies in the United States and Canada tend to undercut one another to get the business.

“They’re not holding the customer’s feet to the fire,” said Townsend.

ABARES forecasts 2.2 million tonnes of canola production, a 20 percent decline from last year.

He doesn’t think Canada will benefit from that as much as the wheat reduction because Australia primarily produces and exports non-genetically modified canola to niche markets in Europe.

Townsend expects canola prices to be rolling up and down like they have the past couple of years.

“For canola, I would advise farmers to be purely opportunistic,” he said.

Barley production is forecast at 6.9 million tonnes, down 17 percent from last year.

“The lack of barley in Australia is going to create some opportunity for Canadian feedgrains,” said Townsend.

ABARES did not provide an update on its pulse crop estimates but in its September crop report, it forecast 351,000 tonnes of chickpeas, a 69 percent drop and 369,000 tonnes of lentils, a 24 percent decline.

Those estimates will likely fall farther because pulses are primarily grown in eastern Australia.

But pulse demand in India is basically non-existent this year, so Canada may not benefit from Australia’s steep pulse losses.

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