Sydney wheat futures nudged higher, despite officials hiking
their estimate of Australia's newly-finished harvest to a record high as th downgraded
their sorghum crop forecast to the lowest in nearly 20 years.
Eastern Australia wheat futures for March gained 0.5% to Aus$224.00
a tonne on the ASX exchange, in line with their highest finish since November.
The headway came despite Abares, Australia's official
commodities bureau, raising by 2.49m tonnes to 35.13m tonnes its estimate for
the domestic wheat harvest - meaning the crop exceeded the previous record high
of 29.91m tonnes, set in 2011-15, by even more than had been expected.
"An already-huge crop got larger," said Tobin Gorey at
Commonwealth Bank of Australia.
However, he highlighted that ideas of a sizeable harvest had
already been evident in a crop that "is straining the Australia's logistical
capacity to handle all that grain.
"Australia's wheat crop is already a reality, not an
expectation," Mr Gorey said, flagging "spillovers and stretched seams" in the
"Moreover, the ongoing rise in global prices is simply
making Australian wheat more competitive," he said, with wheat futures in
Chicago, the world's benchmark market, overnight closing at their highest in
"Perhaps the Australian market's response will be to do
nothing and let the extra competitiveness work its slow magic on making grain
disappear onto ships."
At US broker Halo Commodity Company, Tregg Cronin flagged signals from the cash market a large harvest had already been baked into prices.
"Australian wheat basis has seen a corresponding weakness throughout harvest as Australian handlers recognise the need to max out export capacity, and remain price competitive throughout 2017," Mr Cronin said.
Abares' wheat harvest upgrade reflected higher expectations
for crops in all the major producing states, but in particular, where the output
estimate was lifted by 875,000 tonnes to 11.38m tonnes, unusually far exceeding
the result in Western Australia.
Officials flagged that ample rains had proved more helpful
than harmful, saying that "waterlogging adversely affected crops in some regions,
but yields were still high in most affected regions".
Abares also raised its estimates for Australia's barley
harvest, by 2.77m tonnes to 13.41m tonnes - far exceeding a record of 10.38m
tonnes set 13 years before while upgrading canola production by 563,000
tonnes to 4.14m tonnes, the second biggest crop on record.
These upgrades were weighted more towards Western Australia,
where the bureau highlighted a boost to production from timely rainfall and low
rates of evaporation across the state's cropping areas.
"Despite frost-related losses across the state, yields in
unaffected areas were very high and more than offset losses."
However, the bureau cut by 231,000 tonnes to 1.21m tonnes,
the lowest since 1997-98, its forecast for the yet-to-be-harvested sorghum
The downgrade reflected ideas of weaker yields, besides a bigger
drop in plantings than previously foreseen by 35% to a 25-year low of 41,000
Besides a switch by many growers to cotton thanks to pricing
signals, as Abares flagged in December, "late-season planting is expected to be
minimal because of unfavourable seasonal conditions over the past three months.
"These conditions are also expected to constrain the average
yield, with production forecast to fall by 41%."
Cotton, rice outlook
Indeed, for summer crops overall, "drier and warmer than
average seasonal conditions in the cropping regions of Queensland and northern
New South Wales over the past three months have reduced prospects for
production in 2016-17," the bureau said.
The estimate for Australia's rice output was cut by 46,000
tonnes to 870,000 tonnes, although the estimate for cotton production was kept
at an elevated 1.46m tonnes.
"Favourable supplies of irrigation water mean the recent
unfavourable seasonal conditions have not adversely affected prospects for
irrigated cotton," Abares said.
The dry weather in eastern Australia was noted separately on Tuesday by industry group Dairy Australia, which said that "after a drier-than-average summer across much of the east of the country, some areas in south east Queensland, as well as isolated regions in coastal New South Wales and east Gippsland, Victoria have experienced severe rainfall deficits over the past three to four months.
"Soil moisture in these regions is significantly below average."