Insights August 2023

Commodity Overview

• This month’s national wheat production estimate remains unchanged at 27.9 million tonnes. A decent widespread rainfall event is needed in the next month to keep current yield potential from sliding.
• It was a massive rollercoaster in international futures markets over the month due to escalations in Ukraine and northern hemisphere production concerns. Local values were much steadier with the Australian APW Wheat (index) price holding up well to finish $11 per tonne up month-on-month.

The seasonal status along with production prospects remain mixed around the states. Below average July rainfall fell across most grain regions. This has put further stress on crops in northern New South Wales and southern Queensland. Crops continue to develop well through southern New South Wales, Victoria and South Australia. Western Australia remains a mixed bag. Dry conditions are developing in the state’s northern regions while production prospects in the south remain strong. This month’s national wheat production estimate remains unchanged at 27.9 million tonnes. Yield cuts in northern New South Wales are offset by increases in southern New South Wales, Victoria and South Australia. A decent widespread rainfall event is needed in the next month to keep current yield potential from sliding.

Wheat exports have maintained record pace all season with the final export figure estimated at 30.7 million tonnes. This pace is expected to drop off in the final two months as the domestic market starts rationing grain due to ongoing dryness concerns. Domestic grain trans-shipments to Brisbane have resumed for the first time since 2020. Feed barley shipments from Western Australia are helping relieve tightening old crop supplies in northern domestic markets.

It has been a volatile month for global grain prices due to geopolitical tensions and weather concerns. Prices increased in late-July after Russia's attack on Ukrainian grain infrastructure. Increased supply concerns out of the Black Sea region rattled markets. Dry weather across the US and the EU also lent support to prices. Prices rallied on this news but have since retracted much of the gains. At the moment, the market seems content that a solution can be found for the Black Sea conflict. Meanwhile, the short-term weather outlook has turned positive for crops in North America. We can expect this price volatility to continue into August. The weather market in the US is still in full play with spring crops in critical development stages. This is combined with a resumption of attacks on Ukraine export infrastructure which has potential to see prices surge again.

Local prices did not move anywhere near the equivalent futures levels in the recent rally. Saying that, declines were not as pronounced in the correction that followed. This saw the month-on-month change in basis (the difference between international and local prices) strengthen by $4-$17 per tonne across port zones. If August remains dry and local production challenges spread, we will continue to see these basis levels lift further.

Source: Profarmer Australia