The size of Australia's wheat export surplus may have a big bearing on this year's wheat prices during this year's harvest.
If exportable supplies are tight, and grain needs to move from WA to the east again, we could have a repeat of last year, where strong basis levels supported grain prices right through to the end of December, after recovering from lows set in November.
On the other hand, if the east coast wheat supply is better this year, forcing more of the SA and WA crops into export markets, our market may come under more pressure.
This year we have international price pressure coming from multiple fronts. Russia is a major competitive source, but so too are Canada and Argentina.
Currently, Russian prices are falling, down $US10 a tonne in the past four weeks, and down $US42 from a year ago.
Therein lies the next issue, because Russian wheat is now being accepted into China and into Egypt. Any Chinese business may compete directly with us, while expanding opportunities for Russia in the Middle East applies pressure to the European Union, and potentially to the United States.
The competitiveness of Russian wheat and the prices they set will have a major impact on global wheat prices and the prices our exporters will be able to achieve.
The problem we have from the Canadians is that in the past 12 months they have helped fill the void left by reduced Australian supplies. With a large crop to move, the Canadians have lifted their sales into China and Indonesia. This is behind a 6.9 per cent increase in their exports over the past year.
This year the global wheat crop is larger, and it won't be as easy for Canada to shift as much grain in total. Under that pressure they are likely to be very keen to retain their increased foothold in Asian markets.
The other problem is Argentina. They are expecting a record 21 million tonne crop, with an exportable surplus close to 15mt. They will be very competitive in whatever markets they can target. That could see them competing directly with our exporters, or simply pushing into other markets that in turn pushes other exporters towards our traditional markets.
If Australia has to increase its volume of exports this year, it will be into a tougher market where importers we normally serve will have alternatives to consider. In turn that will make it difficult for our wheat market to retain the premiums over export prices that we saw last year.
The combination of lower global prices, and lower basis levels is a real risk if we have much increase in our exportable surplus in 2019.
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