Australia set for cheap super yield in wheat: ‘It’s the perfect time for feed makers’

By Kacey CULLINEY

- Last updated on GMT

© iStock/Nenadpress
© iStock/Nenadpress

Related tags: Wheat

Australia is braced for its second largest wheat crop on record, which should garner interest from feed makers given the low price tags this season, an expert says.

The USDA has forecast a 2016/17 wheat crop of approximately 25.5 million metric tons (Mt) – up 2% on the previous year and just shy of the largest crop on record in 2011/12 at 29.5m Mt. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) came in close with a prediction of 25.38m Mt.

Andrew Whitelaw, market analyst at Mecardo – an Australian, independent analysis firm specialized in wool, livestock and grains – said the final wheat harvest would likely be much closer to the 29m record mark.

“From my point of view, I think it will be greater than 28 tons,”​ he told FeedNavigator.com.  “The [government agencies] put out their predictions in mid-June and WASDE was in July, and since then, we’ve had quite a lot of rainfall.”

All regions strong

Whitelaw said weather patterns had been extremely favorable for farmers but, more importantly, had been strong across the country. 

wheat
© iStock

“The main thing is we’ve just had such fantastic weather really, and all at the right times. And what that has meant is yields have gone up…While we’ve got a couple of months to go until harvest where anything can happen, this has been one of the years where, so far, every area is doing good.”

This, he said, was quite unusual for such a sizeable country but was the reason all forecasters were confident in very high wheat yields.

Perfect time for feed makers

Alongside impressive yields, Whitelaw said prices were comparably low.

“As much as we have had the crops increase in size, prices have been quite the opposite, and that’s because everywhere else in the world is producing more.”

Australian Standard White (ASW) wheat, he said, was currently trading at A$262/Mt out of Melbourne, versus A$296 this time last year.

“It’s the perfect time for feed makers. We have very low prices; a lot lower than they have been in the last couple of years, so they’re looking to lock in prices as far forward as they can. There will be feed producers that are buying grain for December 2018 if they can.”

“For some, there may be a bit of negativity around the increased rain – in that there is more pasture in the ground so maybe there will be smaller requirements for feed because the animals can eat the grass – but all in all the biggest cost for a feeder is grain, and grain is cheap now,” ​he said.

Following the global dip

Whitelaw said Australia had managed to resist low crop pricing in the past, holding up prices “relatively well”​ compared to global counterparts. 

Exports_wheat istock

“It comes down to reputation for quality and efficiency. So, if you buy a shipload of grain, you know that there are checks and balances in place and you’re going to get what you ordered. In the past, we’ve also had some pretty big customers from Indonesia and China, as they’re located very close to Australia, so that’s given us an advantage.” 

However, with the upcoming large crop he said costs were “liable to go to the downside” ​in line with the global trend.

Competition would also increase given attractive alternatives for buyers in strong export markets like Indonesia, he said.

Now the rest of the world is pretty cheap – you can ship grain from Russia to Indonesia and it works out cheaper than buying from Perth.” 

Related topics: Markets

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