From mounting tensions with China to trade disruptions caused by the coronavirus, Australian agriculture has been hit by a raft of curved balls in recent months. Still, for wheat farmers, the outlook has seldom been better.
Australia is one of the world’s leading exporters of the ubiquitous staple used in everything from bread to pasta and cakes, and this year the country’s on track to harvest its second-largest crop ever—more than 30 million tons—after widespread rains turbocharged production.
Increased export supplies from Australia and weather woes in other parts of the world mean that the top buyers in this region—including Indonesia, Thailand and Vietnam—are likely to pivot back to Australia, according to Andrew Whitelaw, an agricultural analyst at Thomas Elder Markets in Melbourne.
“In recent years, we haven’t had the volumes to meet the demand of Southeast Asia,” said Whitelaw. “Not only do we have a bumper crop, but we’ve also got the potential for poor crops” in other parts of the world, he said.
With dry weather hurting major growing regions in the northern hemisphere, tighter global supplies are working in Australia’s favor. “If things stay bad in Russia, then we’re talking about a crop which will be diminished,” said Whitelaw. That creates an opening for sales of Australian wheat to the big importers in North Africa and the Middle East.
Those are markets traditionally supplied by Russia and Europe, and Australia doesn’t normally sell into them because of the higher freight costs. But Russia has now imposed taxes on exports, creating opportunities for competitive wheat from other shippers. “The wheat market is based on price everywhere in the world. At the moment we’ve got extremely cheap wheat,” said Whitelaw.
While the industry seems to have avoided a major public hit from the spat between Beijing and Canberra, there are signs something may be simmering beneath the surface. China bought just 888 tons from Australia in November, the lowest since 2011, according to customs data compiled by Bloomberg.
In terms of the harvest, moving such a large volume this year may pose challenges. Stretched capacity could mean traders are less willing to buy grain shorter term, if abundant supplies are available down the track, Whitelaw said. Still, a buoyant mood prevails with the recent rains and it may spill over to the next crop. “I actually don’t see many headwinds at the moment,” he said.
Wheat futures in Chicago fell 0.9% Monday, a fourth day of losses and a further retreat from the six-year closing high of $6.54 a bushel reached on Jan. 5.
