As Australia approaches harvest, a lack of forward sales and shifting global dynamics are set to influence wheat prices, with reduced demand from China and increased competition from other grain producers.
As Australia moves closer to the harvest season, the outlook for its major grain export—wheat—appears increasingly bearish. This sentiment was highlighted during the Australian Market Review – Outlook, Challenges and Opportunities session at the Australian Grains Industry Conference this week.
The session, featuring insights from LDC’s Tim Crowe, AC Grain’s Adam Clarke, and Ingham’s Matthew Clarke, painted a picture of a global wheat market facing stiff competition and shifting demand. A key concern is the significant reduction in wheat imports by China, which has transitioned from importing approximately 15 million tonnes (Mt) annually to a range of 5-9 Mt. This decline is attributed to China’s growing reliance on cheaper, abundant corn, which has displaced wheat in many feed rations.
Tim Crowe highlighted the scale of this shift, noting that China’s corn imports surged from around 4 Mt annually until 2021 to 25 Mt in recent times. Conversely, wheat imports have plummeted. Crowe emphasized that without a substantial increase in wheat imports from other countries like India, the global market may struggle to absorb the reduced Chinese demand. This reduction is expected to have a notable impact on Australian wheat prices as the harvest season approaches.
In contrast to the previous year, when Australia managed to forward sell up to 30 percent of its wheat to China, current conditions show no such sales in place. Adam Clarke of AC Grain pointed out that the absence of these forward sales could lead to a market price decrease of $20-$30 per tonne, reflecting the broader bearish outlook for wheat prices.
Indonesia’s Role in the Market: Amidst these challenges, Indonesia remains a significant buyer of Australian wheat, with current-crop sales continuing despite competition from Russian and Argentinian wheat. Adam Clarke praised Indonesia’s blending skills, which have allowed the country to mix Australian wheat with other origins effectively. The high quality of Australian lower-protein wheat, particularly from Victoria and southern New South Wales, has proved advantageous in this regard.
Production and Export Prospects: Australia is anticipated to produce around 30 Mt of wheat this harvest, with approximately 10 Mt allocated for domestic use. The remaining export surplus faces considerable competition from global exporters, including Russia, which has recently seen a resurgence in its wheat crop. This increased competition, combined with strong corn supplies from Brazil and the US, is expected to put additional pressure on wheat prices.
The potential for high-protein wheat premiums appears limited, partly due to competition from Canadian wheat. Clarke noted that protein premiums for Australian wheat have been modest, with recent market trends indicating no significant uptick in these premiums. Crowe suggested that additional demand from regions like Kenya or South Africa might be necessary to fully utilize Australia’s export capacity.
While the outlook for wheat prices remains challenging, there is a more optimistic view for canola and pulse crops. However, for many Australian growers, the profitability of wheat is under strain, with some relying more heavily on pulse crops for income.
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