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Australia losing relevance as a global wheat exporter…

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The Australian Bureau of Statistics released their July export data last week and the grain numbers undoubtedly reflect the effects of last year’s drought and the many dilemmas for Australian exporters this year.

Wheat exports for July came in at 737,000 metric tonne (MT). This was up from the June number of just 585,000MT but well down on the 1.227 million metric tonne (MMT) exported in May, the biggest wheat export month of the current marketing season (October 2018 to August 2019).

Not surprisingly, Western Australia and South Australia accounted for almost the entire volume, shipping 494,000MT and 216,000MT respectively. The balance of 27,000MT were container shipments from east coast (Queensland, New South Wales and Victorian) ports.

In terms of destinations, Yemen, Vietnam and Japan were the biggest in July taking 113,000MT, 109,000MT and 83,000MT respectively. In June it was the Philippines, followed by South Korea and Japan with 216,000MT, 86,000MT and 81,000MT respectively.

Year-to-date wheat exports now stand 7.457MMT with 57 per cent, or 5.286MMT, shipped in the January 2019 to June 2019 window. Western Australia made up the lion’s share of Australia’s wheat production last year, and at a pinch under 6MMT, the state accounts for more than 80 per cent of national wheat exports this season.

South Australian wheat shipments stand at 1.102MMT since the beginning of October last year or around 15 per cent of national wheat exports. Total east coast wheat exports for the marketing year stand at just 355,000MT. The majority of that volume went out in containers, with Victoria accounting for 194,000MT, New South Wales 102,000MT and Queensland 60,000MT.

Exports of barley in July totalled 209,000MT, almost double the June shipments 113,000MT, with Western Australia making up more than 99 per cent of that volume. Malting barley made up 39 per cent of the July exports, and feed barley made up 61 per cent.

Japan was the biggest importer of Australia barley in July with 105,000MT shipped, followed by China at 62,000MT. This was the opposite of June, where China was the primary destination at 53,000MT, followed by Japan on 51,000MT.

Total exports of barley for the 2018/19 marketing year stand at a healthy 3.459MMT. December 2018 is the biggest month thus far at 1.107MMT, more than double the next closest month. The split between malting barley and feed barley is almost equal with 1.751MMT exported as malting and 1.708MMT exported as feed.

Western Australia has exported 3.143MMT of barley this season, almost 91 per cent of total Australian barley exports. At 279,000MT South Australian exports make up most of the balance, and Victoria has chimed in with 37,000MT of containerised trade.

Interestingly, China has been the biggest destination for Australia barley in the October 2018 to July 2019 window. They have taken 2.231MMT, or almost 71 per cent of total Australian barley trade to international clients. This is despite the ongoing anti-dumping investigation, which appears no closer to a resolution.

The investigation commenced in November last year, and the final decision of the twelve-month inquiry is due in November this year. However, Beijing can extend the investigation by a further six months, to May 2020, if they feel it is required.

While the potential outcomes remain uncertain, it appears that the Chinese government have their hands full on other fronts and are happy to let market speculation and confusion reign in the Australian market until a decision is announced.

On the canola front, July exports totalled 39,000MT, with one 33,000MT cargo loaded out of Western Australia and small parcels of container business out of both Victoria and South Australia.

Marketing season canola exports currently total 1.447MMT, with 79 per cent shipped from Western Australian ports and 14 per cent from South Australian ports. The balance of 7 per cent or 95,000MT were exported from Victoria with one bulk vessel in March and the rest via container trade across the season.

With a run of poor sorghum crops in northern New South Wales and Queensland, sorghum exports total a paltry 62,000MT for the first ten months of the marketing season. This is well behind last year and a long way short of the record 1.6MMT exported in 2013/14.

Last year may have been bad, but this season’s production outlook is not looking any better as the late winter dry continues into the spring. There are good pockets in most states, but widespread rains are required now, and then follow up falls for at least the next month to arrest the deterioration.

Australia has lost significant market share and relevance as a global wheat exporter as a result of last year’s drought and the considerable fall in the continent’s exportable surplus. A repeat of last year is a free leg up for the likes of Argentina and the Black Sea origins who have filled the void into Australia’s traditional Asian wheat consumers.

We have even seen export values out of both regions fall in recent weeks as the plight of the 2019 Australian harvest gets factored into global supply and demand calculations. One thing is for sure, winning back that business in the face of similar competition will not be easy when Australian production recovers.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

The small Australia crop is quickly getting smaller…

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Last year’s Australian winter crop production was the lowest in more than a decade after drought in the eastern states cut production to well under that required for domestic demand.

However, prospects for the 2019/20 season in Australia are now worse as the unseasonably dry August and September extends into October, sapping the early season yield potential and bringing crops to harvest much earlier than usual in many regions.
According to the latest Bureau of Meteorology climate update, rainfall is likely to be below average across most of the country for the remainder of 2019, with high chances of a drier than average October and November in particular.

They predict that daytime temperatures are very likely to be above average across Australia for the remainder of the year with a spell of hot weather likely in early October. These are precisely the conditions experienced in many districts over much of the last week, and this will hasten the ripening process in many regions.
The BOM expects that night-time temperatures will generally be warmer than normal and that a positive Indian Ocean Dipole (IOD) is highly likely to remain the dominant climate driver until at least the end of spring.

This gloomy outlook does not bode well for some late yield relief, and further reductions in production estimates are highly likely as the remaining crop moves swiftly toward harvest. Soil moisture levels have been below average across most of Australia’s farming area for most of the year, and the crop in many regions has simply run out of gas.
This fate has been borne out in the area that has already been dropped for hay, across all states. And the warm weather over the last week will no doubt force growers to a make further assessment of the yield prospects on crops still standing and weigh that up against potential returns being offered by an extremely buoyant hay market.
Production estimates are always a moving target, and this is no more apparent than in the current season. There is a wide variation in production estimates being tossed up by the trade and market analysts, but one thing is undoubtedly common for them all, it will be less tomorrow.

In late September I was thinking national wheat and barley production were around 16.50 million metric tonne (MMT) and 8MMT respectively. One week into October and I struggle to get the wheat crop above 15.75 MMT and the barley crop above 7.75MMT, such is the decline in the very short period of time. Falling production in both South Australia and Western Australia over the past few weeks have been the biggest contributors to that decrease.

So how will this affect trade flow over the next twelve months? Like last season, the market will be driven by the requirements of the domestic consumer. As national production decreases the exportable surplus will decrease, and any need to be competitive into Asia for anything but inelastic Australian demand will diminish accordingly.
In the 2018/19 season demand for grain in Queensland, New South Wales and Victoria far outstripped supply. This resulted in around 3.4MMT of grain, primarily wheat and barley, being shipped around the coast from ports in South Australia and Western Australia to eastern state ports. This was supplemented by around 300,000 metric tonne of rail movements and at as much as 500,000 metric tonne of road movements to east coast consumers.

In addition, the east coast supply deficit paved the way for the approval of milling wheat imports from Canada. The grain was shipped into Port Kembla and then taken by train to Manildra’s Shoalhaven starches facility at Nowra, a distance of around 70 kilometres.

While national production will be down year-on-year, the production landscape has changed. Total wheat and barley production in Western Australia will be down by as much as 5MMT and production of the same grains in the eastern states (including South Australia) will be up by around 3.0MMT, based on the aforementioned production estimates.
Demand tributary to the ports of Brisbane and Newcastle will be heavily reliant on coastal movements from Western Australia and South Australia, supplemented by rail and road movements from Victoria and South Australia. Manildra will continue to buy locally and has already booked more shipments out of Canada to meet their quality requirements.
How the trade reacts at harvest will be the most interesting market dynamic. With drought on the east coast last year many bought up big at harvest believing ownership would be king, only to see cash prices and basis drop dramatically in early 2019.

One would expect their approach to be a little more measured this harvest, especially with Western Australian values currently well above export parity and the delivered Queensland markets priced at, or close to, full execution from the west.

For the eastern state grower, it will be all about capturing the domestic premiums without taking on an undue amount of counterparty risk. This means that the highest price may not always be the best price. Many Victorian, New South Wales and Queensland producers will have existing end-user relationships and cash flow will be generated by selling into the domestic market direct off the header and then filling on-farm storages.

South Australia will be a little different. Pricing for the Eyre Peninsula and the Yorke Peninsula growers will be focussed on coastal movements through the ports to New South Wales and Queensland. The Adelaide zone grower may find an incentive to truck their production east. Better prices may be found at silos in Victoria or even New South Wales than at the local silo, especially at harvest time.

It may seem a long way to go, but from the right locations, the higher price should more than make up for the additional freight cost. If the grower doesn’t move the grain east, the trade will, so it is definitely worth doing the analysis and banking the spread if it is available. Better still, let your trusty grain broker point you in the right direction.
Agricultural production globally is at the whim of the weather. The one thing we do know is that drought-breaking rains in Australia are a day closer. In the meantime, the relatively small Australian crop is quickly getting smaller.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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