Insights August 2021
Insights August 2021
- After a delayed start in Victoria and South Australia, July rainfall has significantly improved conditions with crop prospects mainly good to excellent in most areas.
- Wheat and canola prices continue to find support from adverse production prospects in international markets.
July rainfall has improved conditions in previously dry areas of South Australia and Victoria and positive weather persisted in Queensland, New South Wales and Western Australia. Crops across the majority of winter cropping regions are now in good to excellent condition. Should favourable weather continue through to harvest, wheat production is likely to exceed 30 million tonnes and canola production may reach record levels. Global supply continues to encounter concerns: according to the United States Department of Agriculture (USDA), only ten per cent of the US spring wheat crop is in good to excellent condition, 55 per cent below average. Russian wheat production estimates have recently been cut by almost six million tonnes to 76.4 million tonnes, an 11 per cent reduction on last year. Drought conditions across the Canadian Prairies have canola production and ending stocks at the lowest level in ten years.
Domestic demand is relatively subdued as consumers are comfortable with current coverage. On the assumption that there is still plentiful stock being stored on farm, they’re content to buy as required and wait for prices to ease as production prospects rise. Export demand for wheat remains strong with Australian Bureau of Statistics (ABS) data showing current export pace is 61 per cent above average and only two per cent behind record to the end of May. Demand from African destinations has eased as northern hemisphere crops become available, however wheat exports to South-East Asia continue unabated. Demand from Japan and South Korea is picking up as easing demand from Africa makes more port capacity available.
In recent drought years, Australia’s grain prices have been driven by domestic demand in eastern states. With increased exportable surplus this season, international markets have driven local prices. This is more prevalent in export focussed Western and South Australia. Since the start of April wheat prices have gained $30 to $50 per tonne then softened $10 to $20 per tonne, in line with Chicago Board of Trade (CBOT) wheat futures which have been following the condition of northern hemisphere crops. Positive reports on the European crop saw prices weaken. Forward canola prices remain near record levels due to ongoing demand for biodiesel and a tight global balance sheet.
Prices are expected to weaken as the European harvest gains pace. Increased stock availability will see demand for Australian exports ease. Once the northern hemisphere crop is known, local prices will start to take guidance from domestic weather, while low carryover stocks and high global demand should prevent significant price declines.
Sources: Profarmer Australia