PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 15:05 UK, 14th Feb 2017, by Mike Verdin
Australian wheat futures nudge higher, despite crop estimate hike

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.

'More competitive'

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 logistical network.

"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 seven months.

"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.

Barley, canola upgrades

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."

Sorghum slump

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 crop.

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 hectares.

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."

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