Australia: China missed as wheat harvest nears: AGIC

The price outlook for Australia’s major grain export is undeniably bearish as growers and traders head towards harvest without forward sales, which came last year from China, on the books.

That was the message from the Australian Market Review – Outlook, Challenges and Opportunities session at the Australian Grains Industry Conference this week.

It canvassed the views of LDC head of Asian wheat and barley research Tim Crowe, AC Grain principal broker Adam Clarke, and Ingham’s general manager commodities Matthew Clarke, and glanced around a global market awash with competition for all grades of wheat.

Weighing on the Chinese complex is the fact that cheap and abundant corn has displaced wheat in many a ration.

Mr Crowe outlined the enormity of the change in China, which imported around 4Mt of corn per annum until 2021, and then jumped to 25Mt, while wheat has gone the other way, with imports falling from around 15Mt per annum to 5-9Mt.

“The quickest answer is that there is no replacement,” Mr Crowe said.

“Unless India comes on wheat, there’s nowhere else in the world to replace it if China imports drop 6-8Mt year on year.

“It is going to have a significant impact on Australian prices at harvest.”

Market talk says Australia had forward sold up to 30 percent of its wheat to China by the time last harvest rolled around.

“To my mind, those Chinese sales were made before the market started coming off; those sales effectively underpinned prices to growers at harvest,” Adam Clarke said.

“If we hadn’t had those China sales…there were days there I was doing calcs with people that our market could have arguably been $20-$30 Aussie lower at the time.

“To the best of my knowledge at this stage, we don’t have any China sales.”

“As we look forward now, I think there’s the story around bearish wheat numbers which has been done to death today, but it is real.”

Australian Bureau of Statistics data indicates China on 4Mt was the biggest market by far for Oct-Mar wheat, followed by Indonesia on 2.1Mt.

Adam Clarke said the high quality of Australia’s lower-protein offering kept current-crop sales to Indonesia ticking over in the face of competition from Russian and Argentinian wheat.

“Our Indonesian friends have become quite adept at blending lowest-cost origin with Australian wheat.”

“The quality of the ASW9 that came off in Victoria and southern New South Wales…was excellent; I can see how that style of wheat would have been absolutely ideal to blend with other origins.”

Australia is expected to produce around 30Mt of wheat this harvest, and the domestic market will use roughly 10Mt.

The export surplus will undoubtedly face headwinds in Asia and the Middle East from other exporters including Russia.

Mr Crowe said everyone was “killing the Russian wheat crop” back in May, which pushed prices up $30-$50/t.

This moved elastic global feed demand across to corn, and it is likely to stay there thanks to abundant supply after Brazil’s big harvest and in light of a near-record US corn crop.

Mr Crowe said Vietnam’s and South Korea’s feedmills are subsequently pencilled in to use “the absolute minimum rate of wheat in their rations”.

“If wheat is flat to bearish, you’ve got corn sitting in the background.

“If wheat goes down, corn will go with it, or vice versa.”

On the production front, NSW and Qld are looking at above-average seasons, which bodes well for what are traditionally the Prime Hard wheat regions of northern NSW and southern Qld where an export surplus of high-protein is produced

Adam Clarke is reserved about prospects for this segment to fetch a significant premium from the export market, in part because of competition from Canada.

“I can’t see protein premiums really blowing up too much.”

He said premiums for high-protein wheat are already modest, as evidenced by US Hard Winter wheat recently trading into Indonesia for the first time since 2020.

Mr Crowe said some pop-up demand would be good to see ahead of harvest.

“The last time we had a northern NSW crop this big, we actually ended up shipping a lot to east Africa back in 2020-21.

“I do think we need to find some extra homes like Kenya or South Africa to ship to our full program.”

While canola and pulse price outlooks are more promising, a bullish picture for wheat is far from view.

“The threat is that prices sit here or go lower, and a lot of growers are effectively growing grain crops for the love of it, and relying on their pulse crops for income.”

Tags: imports, Australia, China, corn, export, grain, price, Outlook, wheat, crop