Market Insider

Weak Acres but Strong Exports for Australian

This week we got the March 2018 WASDE report from the USDA but there wasn’t anything to noticeable for the week market. More specifically, Russian wheat exports were raised by 1.5 million to 37.5 million tonnes. Also, the USDA lowered hard red winter wheat exports by 15 million bushels and hard spring wheat exports by 10 million bushels. This meant the US wheat ending stocks were raised by 25 million bushels month-over-month to 1.034 billion bushels. Overall, global wheat stocks still expected to be available by the end of the 2017/18 crop year is 267 million tonnes (still a record).

Instead of putting our head in the sand, come with me to the Land Down Undaa and try to understand how the Aussies are viewing the world wheat market right now. ABARES (basically Australia’s USDA) is forecasting that 30 million acres of Australian wheat will get planted for the 2018/19 crop year. This is unchanged from what was seeded in the 2017/18 crop year. On the same token, Australian wheat production is expected to rise from 21.2 million MT in 2017-18 to almost 24 million MT in 2018-19. The main reason for this is return to more average yields as this past year, 2017/18 Australian wheat yields fell on drier conditions.

That being said, these 2018/19 forecasts are just a shot in dark really as the soil moisture conditions in Australia over the next 6 months will really determine the size of the wealth crop there. Specifically, weather developments leading into the planting season (May to June) or achievable normal seasonal conditions throughout the rest of season will be needed to achieve these Australian wheat production numbers.

Looking further out, ABARES is expecting Australian wheat prices (and generally world wheat prices) to remain weak for the next 5 years through the 2022/23 crop year. Thus, Australian wheat acres are expected to continue to fall in the years to come. However, Australian wheat output is expected to rebound due to improvements in field productivity and better varieties, which add up to higher yields.

On the demand side of the equation, Australian wheat exports are expected to edge lower from 16.8 million in the current 2017-18 crop year to 16.3 million tonnes in 2018-19. However, three things continue to support will help Australian wheat exports recover over the next five years.

  1. Higher domestic production (so there’s more wheat to go around);
  2. Stronger demand from Asian markets (they have a growing middle class!); and
  3. The weaker Australian Dollar against the US Dollar.

On this last point, Australia wheat will continue to face strong competition from other major wheat producer countries/regions such as Canada, United States, and the Black Sea region.One interesting reporting is that export trends and trade sources indicate that Black Sea wheat is gaining acceptance in more price-conscious Asian markets such as Indonesia. (We’ve previously noted how Indonesia is the new wheat king!).

All in all, there is no shocking news coming out from Australia that is going to shake the global wheat market. Australian wheat acreage will remain relatively unchanged, improvements in yield productivity are expected, and Australian export demand is foreseen to stay relatively stable. As a reminder though, we’ll be watching soil moisture and weather conditions over the next few months to see if Mother Nature will play nice in the Land Down Undaa or not!

To growth,

Brennan Turner
President & CEO |