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Hopes grow for Australia's wheat harvest - but not its exports

"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.

'Favourable conditions'

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."

'Increasingly competitive'

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 supplies.

"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 declined".

Australia vs Black Sea

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 grain around'

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 tick by."

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."

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