Global wheat supplies remain in a state of flux as the northern hemisphere harvest wraps up. We have been used to seeing production estimates in decline in a number of countries, but this week we saw one crop forecaster lift the Russian crop slightly because of better yields for spring wheat in Siberia.
The market is also relying on a big crop from Australia to ease supply concerns. While we are expecting a big crop, the edge has been taken off by frost in WA, and a dry spring to date across many parts of the country.
Meanwhile China has stepped up its purchases of Australian wheat. They are cancelling orders for French wheat because of quality issues and turning to us for replacement cargoes.
One estimate is that they have purchased as much as 2 million tonnes, from total farmer sales of new season wheat of around 5mt.
A mixture of quality issues and small crops will disrupt the normal flow of wheat from exporters to importers this year. We can also throw expensive bulk shipping freight rates into the mix. All in all, importers will be looking for wheat from different origins than what we might have expected in a more normal year.
This will leave Australia in a good position to clear its second large crop in a row, but we will have our own logistics issues to contend with to make sure that grain is in an export position, against shipping slots that will be heavily booked.
It is interesting to see that Australian farmers may have already sold as much as 20 per cent of our expected exportable surplus. That is grain that our trade won't have to fight for to meet early shipping commitments.
With wheat prices very high we can also expect growers to make sales off the header, adding to the supplies that exporters will have easy access to.
With a big crop, and high prices, a lot of capital will get tied up holding grain. Interest rates are low, but there is still a limit to how much capital the trade will have available to hold inventory.
If the trade has good coverage and don't need to fight for grain when they need it, and if capital resources become strained, the appetite of buyers to keep accumulating grain may wane as harvest progresses.
That is probably why some are suggesting that wheat prices are at risk of falling away once our harvest gets under way. That may hold for our domestic market, but our big crop may also pressure the global market if it is seen as filling some of the quality and supply gaps being left by other exporters.
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