- Large Australian crop projected as harvest progresses
- This is a rare occasion where annual Australian wheat production exceeds that of Canada
- Strong global demand should be able to deal with larger canola crop
The Australian Bureau of Agricultural and Resource Economics and Sciences, a government agency akin to our Statistics Canada, released a crop report last week detailing what appears to be quite large crop production prospects with harvest already well underway.
Total winter crop production is forecast to rise by 32 per cent in 2016-2017 to a record 52.4 million tonnes with higher production forecast for every Australian state. This represents a 14-per-cent upward revision from the forecast the Australian bureau published in the September 2016 edition of its crop report.
For the major winter crops, wheat production is forecast to rise by 35 per cent to a record high of 32.6 million tonnes; barley production is forecast to rise by 24 per cent to a record high of 10.6 million tonnes; and canola production is forecast to rise by 22 per cent to 3.6 million tonnes, which would be the third-highest on record.
Total winter crop production is forecast to rise by 32 per cent in 2016-2017 to a record 52.4 million tonnes Summary: Australia's appears to be on the way to be record wheat production. Here's a look at the numbers, and the impact the figures could have on global pricing.
Australian crop production 2017 compared to 2016
Note: measured in million tonnes
A rare occasion where annual Australian wheat production exceeds that of Canada suggests an extension of competitive offshore wheat trade with big crops of the United States, Canada and the Former Soviet Union. Export velocity in wheat likely operates near capacity right through and merges with northern hemisphere new crop winter wheat harvest next spring and summer.
In this environment, it is hard to imagine the broader wheat market has a chance of maintaining sustained price uptrends. Wheat price advances likely remain limited until exportable such time wheat surpluses are exhausted or unless the U.S. winter wheat crop show stress after breaking dormancy around mid-March.
Quality spring wheat continues to maintain a sizeable price premium to the other wheat classes, but price spreads are already quite stretched. Still, protein and high quality will continue to exhibit price leadership.
An Australian barley crop of more than 10 million tonnes must be priced to compete with a large former Soviet Union supply - a market condition that extends right through a period when European new crop hits the market next summer. This competitive price environment largely shut out Canadian feed barley from the export market.
On malt barley, the introduction of Australia’s larger-than-expected new crop supply has already pressured malt barley pricing, even here on the Prairies. The chance of Canada competitively grabbing discretionary feed barley and malting offshore barley sales is low for the next six months.
The Australian harvest started about three weeks later than expected, in part because crops were busy adding yield. This and some poorly timed rains created logistical difficulties early, mostly for chickpeas, and reminiscent of wet harvest challenges situation here on the Prairies ... but now the rush is on to catch-up.
Australia’s red lentil crop could actually be 0.6 to 0.75 million tonnes - a whopper. Yield and quality are reported to be excellent. An extra 0.10 to 0.30 million tonnes is like an extra 10 per cent of quality supply relative to size of Canada’s crop. That’s a key reason why world red prices have sunk to around US$610 a tonne right now, at the bottom end of 1.5 year old range.
Chickpea production is believed to be in the 1.25-1.4 million tonne range, the majority of which are desi. This is exportable volume that is apt to linger close to where price sensitivity to India rabi (winter) season pulse crop starts.
We’re not overly concerned about the size of Australia’s pulse crop as a stand-alone event, but it certainly dulls upward price potential when most have dialed up large crop size potential in India, the former Soviet Union and Canada in 2017. It’s up to demand to sufficiently expand.
While projected by the Australian bureau at 3.6 million tonnes – third highest on record – the traders believe a final harvest result climbs closer to four million tonnes. Fortunately, global canola demand this year will be very strong, with this excess supply flow to insatiable Chinese demand and to Europe to make up for a 2016 crop shortfall.
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