Insights September 2024

Commodity Overview

• Latest crop estimates have Australia producing their fifth largest winter crop ever. With varied conditions across states a kind spring finish is required to achieve this.
• Domestic prices will continue to be heavily influenced by global market dynamics. Very little new crop pricing has taken place to date. Sellers are reluctant to take on risk and commit at current price levels and traders happy to sit back for the time being and see how supply and demand aligns later in the year.

ABARES' September Australian Crop Report forecasts a 17 per cent rise in 2024/25 winter crop production to 55.2 million tonnes. It would be the fifth highest on record. Wheat production is expected to rise by 23 per cent to 31.8 million tonnes, while barley production is forecast to grow by 13 per cent to 12.2 million tonnes. In contrast, canola production is expected to decrease by 8 per cent due to a reduction in the area planted. While overall production will increase, state-level outlooks vary. New South Wales and Queensland are expected to have near-record yields. Western Australia is forecast for above-average production despite a dry start. But South Australia and Victoria are looking to have below-average yields due to dry conditions and moisture stress.

Australian grain prices tracked global trends in August and fell. Wheat prices dropped by 5 to 15 per cent in port zones. Price declines in Victoria and South Australia were more limited. This was due to ongoing uncertainty in production. Western Australia also saw smaller declines, despite improved production outlooks. Traders tried to entice some early sales from local growers. In contrast, New South Wales and Queensland saw the biggest drops. This was due to the approaching harvest and expectations of large crops. Demand for the new crop in these states is weak. Local buyers and traders are taking a cautious, wait-and-see approach.

Global supplies continue to build with the US spring crop harvest more than halfway complete, and the Russian winter harvest around 80 per cent complete adding to harvest pressure. Additionally, low-cost Black Sea cargoes are keeping prices in check. Wheat prices rose slightly at the end of August. This was after the EU Commission estimated 2024/25 wheat output would fall to 116.1 million tonnes. That's down from 125.5 million tonnes in 2023/24 and 4.7 million tonnes below their July forecast.

However, each time we begin to think that markets are finding support, a new challenge emerges. The latest, unconfirmed news is that Chinese authorities have told private traders to stop cereal imports for the rest of the year. If true, these actions could hurt the Australian barley market by stifling early season trade. Barley prices will face additional pressure if new crop sales to China need to find new export homes.

Domestic canola markets remained volatile over August, often posting large daily swings. Gains in the past week saw overall values down by 2 per cent for the month. Canola continues to show some resilience, with current values holding above decile six. Lower supply in Europe and the Black Sea should support prices. European import demand is expected to be higher year-on-year. The market will also be watching how the news of China launching an anti-dumping investigation on Canada plays out. A possible outcome could see China returning to Australia for supplies. But lifting export restrictions imposed in late-2020 would be necessary.

As we move towards harvest, the overall outlook for Australian grains remains cautiously optimistic. Increased production levels are set to result in a substantial exportable surplus. While this provides opportunities for increased trade, it also means that domestic prices will be heavily influenced by global market dynamics.

Source: Profarmer Australia