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Covid-19 threat to high-end bakers to cap Australia wheat export rebound

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Australia’s wheat exports will recover strongly thanks to a recovery in production from drought-hit levels, Canberra officials said – although, citing a Covid-19 dent to demand, proved less upbeat than US peers.

 

Abares, the official Australian crop bureau, upgraded by 2.00m tonnes to 18.50m tonnes its forecast for the country’s wheat exports in 2020-21- a bounce of 84% year on year.

 

The recovery from the 10.04m tonnes shipped last season reflected the return of rains which have boosted yield hopes, after three drought-reduced harvest, besides booting pasture condition, and so stemming feed demand from domestic livestock producers.

 

“Significantly higher production and lower domestic use will result in an increase in export supply and lower prices for Australian wheat,” said Abares, which lifted its forecast for the country’s harvest.

 

The bureau, in its latest report, forecast Australian wheat prices in 2020-21 averaging Aus$300 per tonne, a downgrade of $15 per tonne from the previous estimate, and a drop of 39% year on year.

 

‘Adverse effects’

Nonetheless, the 18.50m-tonne Australia wheat export estimate remained shy of the 19.00m-tonne forecast on Friday from the US Department of Agriculture, in its monthly Wasde briefing.

 

Abares said that while expanding global food and industrial use of the grain was “likely to support demand for Australian wheat in export markets”, demand for high-quality supplies which represent a significant proportion of its trade could be crimped by the pandemic.

 

“Uncertainty about the adverse effects of Covid-19 on global demand for high-value foods made from flour may constrain growth in the demand for higher-value milling wheats,” the bureau said.

 

For Australia, some of its “major markets” were vulnerable, notably South East Asia which had ahead of the pandemic seen its imports double in 10 years, spurred by population growth and by rising incomes which “drove up demand for Western-style bakery products

 

“With economic growth forecast to slow in 2020, growth in imports is likely to slow or may even fall, particularly for imports of higher-quality milling wheat and feed wheat.”

 

‘Priced out’

For barley, by contrast, Abares held its forecast for Australian exports in 2020-21 at 6.15m tonnes despite an increased harvest estimate, and what it acknowledged was a “significant surplus of grain around Australia available for export” in the face of softened domestic feed demand too. In June, the bureau said that "total Australian barley exports are expected to reach 6.2m tonnes".

 

It said in its latest report that “Australian barley has been effectively priced out of the Chinese domestic market,” following Beijing’s imposition in May of 80% tariffs on imports, over claims by Beijing of dumping of the grain by Australia.

 

“New opportunities are expected to open in other markets,” notably Saudi Arabia, but potentially the likes of Japan and Thailand too, the bureau said.

 

Nonetheless, it cut by Aus$36 to Aus$230 per tonne its forecast for the average Australian’s feed barely price in 2020-21, a drop of 21% year on year and the lowest in four seasons.

 

Australia vs Canada

For canola, Abares raised its forecast for Australia’s exports in 2020-21 by 227,000 tonnes to 2.44m tonnes, a surge of 42% year on year, fostered by – besides an improved harvest forecast - a rebuild in share of the key European Union import market.

 

“Australian and Canadian canola are expected to compete strongly in the drought-affected European market.

 

“Australian canola is expected to recapture market share lost to Canada when [Australian] production fell in 2018 and 2019.”

 

The European Commission forecasts wheat imports by the EU (excluding the UK) at 4.51m tonnes in 2020-21, above the historic average, although below last season’s 6.21m-tonne result.

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