Insights March 2021
Insights March 2021
- National production estimates increased month-on-month with wheat at 33.7 million tonnes, barley 12.1 million tonnes and canola 4.3 million tonnes.
- Appetite for Australian grain remains strong despite the rising Australian dollar impacting competitiveness into some export destinations.
- Local prices have moved higher over the last month as robust domestic and international demand provides fundamental support.
The winter crop harvest for 2020/21 is complete with record breaking Australian wheat production of 33.7 million tonnes. A very good result with NSW having the greatest production at 13.6 million tonnes. However, much of the later increases to crop estimates was due to WA production being better than expected with the dry finish not diminishing yields as much as originally thought. National barley production estimate is up six per cent for the month to 12.1 million tonnes and canola up three per cent to 4.3 million tonnes. Attention is now turning towards summer crops and how they will perform given a dry February in QLD and recent mice infestations. National sorghum production is estimated at 1.5 million tonnes, down 12 per cent from last month as inconsistent rainfall over southern Queensland reduced planted area and yield estimates. Despite reductions, current season estimate is 28 per cent above average due to reduced production in recent drought years, and in line with longer term averages.
Reduced production in major grain exporting nations such as France, Ukraine, United States and Argentina has shifted global supply chains. Reduced production in the EU and Ukraine has seen the burden of supplying grain into demand points normally provided by them fall to mostly Russian grains. This has seen less Black Sea origin grain available for export to areas such as the Middle East and South East Asia, allowing Australian grain to recapture market share lost in recent drought years due to low supply.
Bulk wheat export pace out of Bulk Handling Company grain export terminals totalling 6.7 million tonnes from October to February is the third highest on record, and 40 per cent above average export pace. Wheat export demand is predominantly from South East Asian countries – Indonesia, Philippines and Vietnam combined have taken over a third of bulk wheat exports season to date. After China took over 800 thousand tonnes of wheat in December, demand has been fairly subdued in January and February, however reports suggest China has purchased a further 400 to 600 thousand tonnes for April to July delivery.
Despite the loss of Chinese barley demand, bulk barley exports to the end of February are 42 per cent above average export pace. Saudi Arabia has filled the hole, taking over 1.2 million tonnes or almost 40 per cent of bulk barley exports to date. Further, bulk barley exports to Saudi Arabia in the current season are a four per cent increase on China’s five-year average barley shipments for the same period.
Canola bulk exports remain around average for the October to February period, however this is attributed more to the lack of available port capacity as wheat and barley monopolise bulk shipping slots rather than a lack of demand. Demand is predominantly coming from European destinations, taking close to 90 per cent of the 1.17 million tonnes of bulk canola shipped season to date. Canola exports to China remain subdued with less than 100 thousand tonnes of bulk shipments to the end of February, almost 60 per cent behind average export pace. However, this isn’t much cause for concern given strong European demand.
In recent seasons grain pricing has been determined by domestic demand in eastern states, however with ample supply for domestic purposes, local prices are being more influenced by international supply and demand factors. In years of high production, increased availability of stock usually weighs on prices, but this season has been something of an exception. Reduced production in major grain exporting countries and Russia imposing an increased tax on wheat and barley exports in order to protect domestic supply has been supportive of international grain prices. Whilst not at record prices around this time last year, wheat prices around the country are generally within +/- $10 of the $300 per tonne mark which puts them around average or better. In contrast, wheat prices in the last year of above average production – 2016/17 – were in the bottom 10 to 20 percent of prices compared to historical values ranging from $210 to $250 per tonne across port zones.
Barley prices have recovered since the large drop in value after China announced an import tax which saw feed barley prices at over $100 per tonne discount to feed wheat in May of last year to current levels around $50 per tonne. Current prices around $240 to $270 per tonne across port zones compared to prices in the 2016/17 season of $150 to $180 per tonne are still favourable, particularly given increased production provides a better return per hectare.
Canola prices are in the top 10 or 20 per cent of prices seen over the last 10 years having been supported by concerns over the condition of the South American soybean crop and China’s record purchasing of US soybeans, which has pushed US soybean prices to record highs and support has spilled over into canola and other oilseeds. Since mid February prices have declined, however majority of growers are understood to have taken advantage of strong canola prices and sold at harvest.
Looking forwards, export demand is expected to remain firm at least until June/July when northern hemisphere harvest commences. Pricing is expected to remain relatively stable with the next big news to affect global prices likely to be the condition of northern hemisphere crops as they come out of dormancy in April. This is likely to have an impact on global, and as a result local prices – should the crop come out better than expected prices are likely to soften, however if they are worse than anticipated it is likely to provide further support for prices.
Sources: Profarmer Australia