Insights August 2020
Insights August 2020
- New season winter crop production prospects are at risk of decline in Western and South Australia following warm, dry conditions in June and July.
- Reduced domestic demand is anticipated to result in an increase to wheat stock available for export.
- Australian wheat prices are expected to decline 10 to 20 per cent in coming months, following anticipated softening in world wheat markets as northern hemisphere crops come online.
Current estimates indicate the national winter crop will increase 45 per cent year-on-year, nine per cent above the five-year average, however that assumes average production in Western and South Australia. Production potential is at risk of decline in Western Australia and South Australia following a particularly warm and dry July. Potential declines are offset to some extent by New South Wales production, where winter crop production is estimated to jump 190 per cent year-on-year, with further upside should favourable conditions continue through to harvest.
Wheat and barley stocks held in bulk storage in Western and South Australia combined are expected to drop below one million tonnes by the end of August. Despite increased supply from Victoria in the current season, a total of 1.7 million tonnes of wheat and barley have been shipped in bulk vessels out of Western and South Australian ports to Queensland and New South Wales to feed domestic demand. Combined with ongoing export demand for wheat from China, Japan and South Eastern Asia, stocks are expected to be near exhausted by the time new crops are available.
In the Northern Hemisphere, winter crop harvest is nearing completion, and as analysts form a clearer picture of harvest performance, estimates of 2020 global wheat production are being revised down. This is resulting from lower than anticipated yields in the European Union and, to a lesser extent, the United States whilst Russia and Ukraine remain largely unchanged. The net outcome is a one per cent increase in global wheat production year-on-year, and global ending stocks (global production minus global consumption) increasing six per cent year-on-year. World wheat prices for the new season have increased on the back of adverse harvest reports, however as Northern Hemisphere grain comes on to the market global prices are expected to be steady to softer in coming months.
Domestic demand for 2020/21 feed grains is expected to decline due to reduced numbers of cattle on feed and improved seasonal conditions which is likely to see an increase to the exportable surplus for winter crops. Wheat export markets in South East Asia and North Asia that have been limited by stock availability in the current season are expected to see increased imports in the coming year. Demand for lentils in 2019/20 has benefited from tariff reductions by the Indian government, but with rates expected to be reinstated at the end of August lentil exports are expected to ease in the coming season.
With waning supplies and majority of current crop wheat, barley and canola already sold or committed, Australian 2019/20 prices have remained flat due to a lack of liquidity and are likely to remain so for the rest of the season. Increased production and reduced domestic demand in Australia suggest 2020/21 prices will be influenced by world markets in the coming season. With Northern Hemisphere crops entering the market, offshore values are expected to soften. Combined with seasonal harvest pressures, this is expected to result in a fall of 10 to 20 per cent in Australian wheat values in the coming months. Barley prices already trading at a significant discount to wheat are expected to remain relatively flat given uncertain demand.
Source: Profarmer Australia