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Australian wheat output to rebound sharply, canola prices to stay high

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Australian wheat production will rebound by 41% next season, more than the likes of barley and canola, as - assuming sufficient moisture - elevated prices spur “opportunistic and widespread” sowings of the grain.

 

Abares, the official Australian commodities bureau, at its annual Outlook conference forecast a recovery of 6.19m tonnes in domestic wheat production in 2020-21 to a four-year high of 21.35m tonnes.

 

The forecast reflects expectations of a revival in wheat sowings to 12.0m hectares, also a four-year high, and representing an increase of 18.7% year on year – the biggest percentage rise on data going back 46 years.

 

“The area planted to wheat is forecast to return to pre 2017-18 levels,” Abares said.

 

“Wheat planting in the [southern hemisphere] autumn of 2020 is likely to be opportunistic and widespread.”

 

‘High domestic prices’

The bureau cited the incentive provided by prices expected to average Aus$319 per tonne next season, a figure which, while down on this season’s Aus$355 a tonne and the Aus$395 a tonne in 2018-19, would represent a historically high figure.

 

The average price for the previous five years was Aus$280 a tonne.

 

“High domestic grain prices are forecast to continue into 2020-21 until production levels normalise,” the bureau said, flagging the boost to values from raised demand from livestock feeders, besides three successive seasons of declining output as drought set in.

 

“Demand for feed grain has increased significantly over the last 10 years as intensive livestock industries continue to expand.

 

“Feeding livestock grain has continued to be profitable despite high grain prices… due to the high prices being received for cattle, sheep and wool.”

 

‘Persistent rainfall required’

However, Abares highlighted too that its outlook was dependent on a recovery in soil moisture levels for the autumn planting season, which is often seen as opening on Anzac day in late April, although with many farmers managing headway before then.

 

“Prolonged drought conditions across eastern Australia led to record low soil moisture levels at the end of 2019,” the bureau said.

 

“Persistent and timely rainfall will be required for wheat production to recover from the low levels of 2019-20.”

 

Weather outlook

Australia’s official Bureau of Meteorology last week forecast last week that for March “the rainfall outlook… shows southern Western Australia, southern South Australia, as well as western and central parts of both Victoria and New South Wales have an increased chance of being wetter than average.

 

“However, northern Western Australia, and large areas of northern parts of the Northern Territory and Queensland are likely to have a drier month.”

 

It added that “while recent rainfall over parts of eastern Australia has eased the dry in a number of areas, long-term rainfall deficiencies continue for almost a third of the country.

 

“Several months of above-average rainfall may be required to replenish water storages and raise streamflow.”

 

Grains vs canola

For barley, Abares forecast a more modest increase in output in 2020-21, of 249,000 tonnes, or 2.8%, to 9.10m tonnes, on a 4.0% recovery in sowings to 4.11m hectares.

 

Output of canola, another popular autumn-seeded crop, will show a bigger recovery, of 13.0% to 2.63m tonnes, on sowing up 12.6% at 2.02m hectares, encouraged by prices which, at Aus$589 per tonne, are expected to remain elevated next season.

 

The average for the five years to 2017-18 was Aus$522 per tonne.

 

Abares cited structural “changes in the relative profitability of alternative crops” to coarse grains, “particularly wheat and canola”.

 

“High vegetable oil prices over the medium term will favour canola planting when agronomic conditions are favourable.”

 

China-Canada trade spat

Abares said that the “price premium” for Australian canola - in the face of the stop that a political dispute has placed on the export of rival Canadian supplies to China – was “projected to continue until 2022-23.

 

“The market for non-GM canola in the European food manufacturing industry means continued strong demand for Australian canola” over biotech Canadian supplies.

 

“Prices for GM canola, or canola that otherwise falls below European standards, will be supported by demand from China as consumers substitute away from Canadian canola.”

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