Australia is discounting its wheat, adding to the downward pressure on prices caused by the global credit crunch and a huge world wheat harvest, says the Canadian Wheat Board.
Multiple sellers are competing for market share in a country that was once the exclusive domain of the Australian Wheat Board.
“They’re offering prices that we haven’t seen out of Australia before,” said CWB spokesperson Maureen Fitzhenry.
Australia has always had a considerable freight advantage over Canada into southeast Asia but that advantage is being whittled away as 12 exporters vie for the same business.
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“In so doing, they are also threatening the returns that we can achieve,” said Fitzhenry.
Ocean freight rates have plummeted, which normally means Canada should be more competitive with Australia in Asian markets. But with the cutthroat competition, it is tough to match the Australian price.
The CWB has also noticed Australian wheat appearing in unusual places like South America, where it is at a distinct freight disadvantage to Canada.
Fitzhenry suspects the price undercutting might be particularly fierce this year because it’s the first year the AWB has lost its export monopoly and its competitors are trying to establish themselves in markets around the world.
Australia has a decent crop to harvest this year, although production estimates are falling.
Australian Crop Forecasters, a private consulting firm, expects the wheat harvest will come in at 19 million tonnes, down from early season estimates of 24 million tonnes. Last year it harvested 13 million tonnes.
Steve Mercer, spokesperson for U.S. Wheat Associates, said his group hasn’t noticed unusually aggressive marketing from Australia.
Iran bought a shipment of wheat from Australia last week for $220 to $230 US per tonne f.o.b., which is well within the range of U.S. prices.
“The biggest point is that we haven’t seen that much competition out of Australia because they’re just now harvesting their wheat,” he said.
Mercer thinks the CWB should not point fingers when it comes to predatory pricing.
“Our customers tell us that probably the cheapest wheat right now is Canadian Western Red Spring. It appears that they are trying to get into the market in a big way before the Australian crop comes on.”
Erica Peterson, marketing specialist with the North Dakota Wheat Commission, doesn’t doubt that sellers of Australian wheat may be more apt to discount prices than they’ve been in the past because of multiple sellers.
But to date, she hasn’t heard anything from customers about overly aggressive pricing behaviour from Down Under.
“It hasn’t been brought to our attention,” she said.
She is hearing about the glut of wheat from the Black Sea region.
“That seems to be a little more burdensome on prices than anything else,” said Peterson.
Former Soviet Union countries produced an extra 20 million tonnes of wheat this year. That increase in output is equal to the size of Canada’s entire wheat crop.
Production in the European Union rose even more, expanding by 28 million tonnes, according to the United States Department of Agriculture.
USDA estimates world wheat production at 680 million tonnes, shattering the previous record of 630 million tonnes set in 1997. There are 70 million more tonnes of wheat to market this year compared to 2007-08.
