"Much improved seasonal conditions" have boosted prospects
for Australia's wheat harvest, US officials said – but the increased output may
not be reflected in extra exports, given tough global competition.
The US Department of Agriculture bureau in Canberra lifted
to 26.0m tonnes its forecast for Australia's 2016-17 wheat crop, sowings of
which are just about complete, citing the boost from soil moisture levels now "above
average" in many growing areas.
"The outlook for Australian winter crops in 2016-17 has
improved significantly due to a turnaround in seasonal conditions which has
seen improving rainfall in May and then record falls in June," the bureau said.
Furthermore, the "weather outlook for the three months to
September is very positive", with Australia's Bureau of Meteorology viewing as
highly likely the prospect of above-average rains in most grain-growing regions.
The revised wheat production forecast is 500,000 tonnes
above the USDA's official forecast, which was itself upgraded from 25.0m tonnes
only last week, with the International Grains Council also pegging the harvest
at 25.5m tonnes.
Abares, Australia's official commodities bureau, has
forecast the crop at 25.38m tonnes, with National Australia Bank among the most
upbeat commentators so far, with a 26.1m-tonne estimate.
The USDA bureau said: "Favourable conditions prevail across
all [Australian] states and suggest that wheat production in 2016-17 will
increase on the previous year," when the harvest reached 24.5m tonnes.
"There is good subsoil moisture across most states and these
conditions would also support higher yield."
However, the bureau held at 17.5m tonnes its forecast for
Australian wheat export in 2016-17, on an October-to-November basis, despite
the extra production, citing growing trade competition at a time of ample world
"The international market for wheat has become increasingly
competitive," the bureau said.
"Australian exporters face greater competition in some of
its traditional markets such as Indonesia, where Black sea exporters doubled
their market share to 16% share in 2015.
While some markets, such as Malaysia and Vietnam "have been comparatively
resilient… the importance of the Middle Eastern and Japanese markets has
Australia vs Black
Competition has been enhanced by weakness in freight rates,
which has made it cheaper for importers to source supplies from distant and
unusual origins, enhancing competition in agricultural commodity markets.
Talking of sales to Asia's Asean trade bloc, historically a
big customer for Australian wheat exporters, the bureau said that "as international
freight costs are now very low, Australia's traditional freight advantage into
this market has been eroded.
Again, the bureau stressed the enhanced competitiveness of
Black Sea exporters, such as Russia and Ukraine, saying that "the freight cost
from Odessa to Indonesia is now reportedly cheaper than from some Australian
ports to the same destination.
"In recent months Australian grain into South East Asian
ports has traded at a premium to Black Sea wheat, reflecting the loss of
Australia's previous freight advantage."
'A heck of a lot of
The comments follow the announcement by Singapore-based Interflour
last month, at the Agrimoney Investment Forum, that it was investigating
sourcing more wheat from the Black Sea, and Argentina, because of the cheapness
of their supplies compared with Australia's.
"Wheat from Russia and Ukraine is of lower quality than
Australian wheat, but not $40 a tonne lower," Greg Harvey, Interflour's Australian-born
chief executive, said.
Meanwhile, grain merchant Nidera Australia separately on
Wednesday said that "we continue to battle a tough market here in Australia.
"We face a wave of grain coming in from the northern
hemisphere, which will only fuel the [wheat market] bear as time continues to
Nidera Australia added that "every grain growing nation in
the world is experiencing fantastic conditions and rain continues to hit the
paddock here in Australia.
"The bottom line is there is going to be a heck of a lot of
grain around within the next few months."