Insights March 2022
Insights March 2022
Global wheat prices have risen 53 per cent since the start of February to hit 14-year highs as a result of the Russian invasion of Ukraine.
Australian prices have not gained the full upside of international price increases due to supply chain constraints.
The worst of flooding in eastern states was confined to coastal areas. While cropping areas did receive heavy rainfall, summer crops escaped significant damage. Soil moisture has benefited from recent rainfall and is in good condition ahead of new crop planting. Soils in Western Australia remain dry and will need some rainfall to before planting.
Wheat, barley and canola exports from October to January are all at record pace. Record Australian exports were forecast before conflict in the Black Sea region. All agricultural exports out of Ukraine have halted. While Russian ports remain open, exports are lower. This is due to financial sanctions and shipping risks in the region. Australia’s port capacity was already pushing limits before the conflict. As such, there is little room to cater for more exports. Australian exports normally start to slow around June when northern hemisphere harvest commences. But if Black Sea supply chains remain disrupted, Australian ports will likely be at full capacity through to the new season.
Chicago Board of Trade (CBOT) wheat prices have risen over 50 per cent since the start of February. They currently sit at A$600 per tonne in response to the uncertainty of supply caused by the crisis in Ukraine. Yet, Australian wheat prices have not received the full benefit of high international pricing. They have gained around ten per cent since the start of February to sit around A$400 per tonne. Upside potential is being weighed down by the size of the local crop as well as supply chain limits.
Australian forward prices have also benefited from record international price rises. But volatility in pricing will remain for as long as conflict remains. The longer supply chains are interrupted, the stronger demand for Australian grain will be. Buyers of Ukraine wheat will look to other origins to replace the roughly 18 million tonnes of wheat Ukraine exports.
Prices will remain elevated even if supply chains return to some semblance of normality in the next few months. The impact on infrastructure and the condition of the Ukraine crop will result in reduced exports for the upcoming season. The condition of the US crop is below average for this time of year, rated as 38 per cent poor to very poor condition. This is likely to see Australian prices supported all the way through to the new season.
Sources: Profarmer Australia