The December Australian Bureau of Agricultural and Resource Economics (ABARES) Crop Report added fodder for the bears, while the USDA World Agricultural Supply and Demand Estimates (WASDE), gave a bit of hope for the bulls. World and local wheat supplies are still flush however, and domestic prices seem to be responding accordingly.
ABARES released their crop report about ten days ago and confirmed what those sitting on the headers, and in the receival sites knew already. This year’s crop is a bumper. As expected wheat yields were lifted, with the national average going from 2.23t/ha in the September crop report to 2.4t/ha in December.
The big moves were in NSW and Victoria, where total wheat production was up 19% and 15% respectively from September, and 485% and 31% on 2019-20. National production isn’t quite expected to reach a record, sitting 2% behind wheat production for 2016-17 (figure 1). With WA wheat production expected to be 15% below 16-17, we can see why the national record isn’t expected to be broken.
Despite ABARES coming in with a national wheat crop of 31.165mmt, the USDA, which released the WASDE after the ABARES report, only pegged our wheat crop at 30mmt. On world scales, 1.1mmt isn’t a huge amount, but it would have helped counteract the 4mmt decrease in ending stocks.
The main driver of the decrease in world ending stocks was increased consumption in China. There is more wheat expected to be exported to China, which led to 11% falls in ending stocks in the EU and Canada.
Figure 2 shows that despite the increase in consumption and ending stocks the world isn’t going to run short of wheat this year. The WASDE is still forecasting record production, consumption and ending stocks.
ABARES also forecast increases in barley and canola production, lifting levels 7% and 8% respectively from September forecasts. Total barley yields are forecast at 11.96mmt, which is 33% above last harvest. The increase in canola yields are expected to lift production to 3.7mmt, 59% above 2019-20. The increased yields are having predictable impacts on local basis.
What does it mean?
With the harvest of higher than expected yields comes harvest pressure, as on-farm storage is quickly filled and plenty is sent into bulk storages. With wheat, the risk of holding on for stronger basis comes with falling international prices. There is still opportunity to hold on to wheat, but taking some cover on international futures might be prudent.
Canola is in a similar boat, while barley is likely to track along sideways, given it is now at export parity into the market which will still take it.
Key Points
- ABARES Crop report showed strong lifts in Australian winter crop production, which is currently pressuring prices.
- The USDA is expecting higher consumption, leading to lower ending stocks, but world wheat supply is still very strong.
- Those holding wheat might think about taking some cover on international futures.
Click on graph to expand
Click on graph to expand
Data sources: USDA, ABARES, Mecardo
