Australia’s grain market in 2017/18 is tight! And it looks to remain so until new crops can be harvested in late 2018/early 2019. ABARES shocked the market with a sizeable downward revision to 2016 wheat production (30.3 MMTs, vs. 35 previously). The USDA followed, and thus lowered 2016 Aussie wheat stocks from a lofty 7.1 MMTs to 4.4. This in turn reduced 2017 wheat stocks to 3.2 MMTs, vs. 4.3 MMTs previously. Lower wheat production has been well documented, but drought also affected the Aussie barley crop, and combined major grain stocks in Australia are now forecast at just 4.1 MMTs, vs. 5.1 in December and 5.8 MMTs last year. Aussie grain stocks in 17/18 will be the lowest since 1998, and may fall further in coming monthly reports.
Favorable rainfall resumed briefly across E Australia in November, which was a positive for sorghum production, but since excessive heat and dryness have been widespread. Rainfall since December 1 across a majority of Australia’s sorghum belt exists in a range of just 20-40% of normal; high temps in the 90s/low 100s have too common and downward revisions to Australia’s sorghum crop lie ahead.
Note that Australia typically exports just 500-900,000 MTs of sorghum, but amid lower production some 250-400,000 MTs of sorghum demand must be eliminated altogether to maintain any level of end stocks. Unlike almost every other nation in the world, Aussie grain supplies must be rationed in the months ahead, and lofty wheat prices may shift some demand to the US beginning in spring.
And the abrupt change in Australian wheat ending stocks has long term consequences. Assuming trend yield and stable domestic use, AgResource’s work suggests the market there must buy another 1 Mil Hectares of wheat production this spring. Such seedings will be the largest since 2011 and just 400,000 hectares shy of the all-time record. Amid reduced carryover stocks, Australia’s exportable wheat surplus is unlikely to exceed 18 MMTs without near perfect weather next autumn.
Australian wheat fob offers this week range from $225-235/MT, vs. comparable Gulf HRW at $206 and vs. Black Sea origin at $195. Some rationing is occurring already. But, ARC doubts Aussie grain markets have much downside risk, and until enlarged wheat seedings are confirmed in May and June. Seasonally, we note that Aussie wheat prices tend to move higher into June/July. Aussie fob offers will remain elevated