'Considerable transport problems' cut Australian wheat export hopes
"Considerable transport problems", prompted by a scramble to exploit strong demand for pulses and canola, will deny Australia a record in wheat exports this season, and prompt a far bigger drop in 2017-18 than has been forecast.
The US Department of Agriculture's Canberra bureau cut its forecast for Australian wheat exports for 2016-17, on a July-to-June basis, to 22.0m tonnes, below expectations from other commentators – including the USDA itself.
And the bureau pegged wheat shipments next year from Australia, the southern hemisphere's largest exporter, at 18.0m tonnes – 2.9m tonnes below the estimate from Abares, Australia's official commodities bureau.
Wheat vs canola
The bureau said its forecasts reflected in part expectations of a "continued strong Australian dollar", which undermines the competitiveness of the country's exports, besides the prospect of a retreat in production from this year's record high.
Estimates for Australia wheat output 2017-18 and (figure for 2016-17)
Abares: 23.979m tonnes, (35.134m tonnes)
IGC: 25.6m tonnes, (35.1m tonnes)
USDA bureau: 24.0m tonnes, (35.0m tonnes)
USDA: n/a, (35.0m tonnes)
The 2017-18 harvest was seen tumbling by more than 30%, to 24m tonnes, from the current season's record high, undermined by "projections for lower average rainfall", besides the dent to sowings prospects from weak prices.
"Farmers have been influenced by the continuing fall in wheat prices on world markets, and alternative crops such as canola are expected to become more popular," the USDA said.
The comments echoed those earlier in the week from Rabobank, which said that "total area planted to wheat is expected down on average, on the back of price relatives with alternative crops.
"Increased planting of canola and pulses is expected."
However, the bureau also flagged "ongoing port and logistical problems" stemming from a shortfall in shipping containers, which merchants rely on to a large part for carrying wheat exports.
Forecasts for Australia's wheat exports, 2017-18 and (estimate for 2016-17)
Abares: 20.872m tonnes, (22.784m tonnes)
IGC: 19.5m tonnes, (23.0m tonnes)
USDA bureau: 18.0m tonnes, (22.0m tonnes)
USDA: n/a, (23.0m tonnes)
Data for July-to-June marketing years
The problems, "which have continually hampered wheat exports and could continue for the rest of the year", began in the second half of 2016, when shippers reportedly diverted containers for carrying pulses and oilseeds.
"These… exports have higher unit values and were given priority by shipping companies," the bureau said, adding that the shippers "also introduced higher fees during peak periods".
"As a result, there were considerable logistical and transport problems in exporting the wheat crop from the second half of 2016, particularly for traditional exports of milling wheat into South East Asia."
Penalties exceed margins
The comments follow a warning from the Australian office of grain trader Nidera that the "reputation of the Australian exporter is being jeopardised by the lack of accountability of global container freight providers".
It backed the idea that shipping lines had "prioritised the higher paying pulse cargos to the detriment of traditional milling wheat shipments into South East Asia.
"To add insult to injury the shipping lines have substantially increased their second quarter freight rates and imposed 'peak season' surcharges" even on delayed container cargos.
"So product that was originally intended to be shipped in February, but now not going out until April in many cases, is incurring an additional freight cost."
Combined with charges from importers for late delivery of wheat, "all of these penalties far outweigh the original margin the exporter hoped to achieve when they originally negotiated the business", said Peter McMeekin, Nidera Australia origination manager.
The container shortfall has been exacerbated by other factors, including last year's collapse of South Korea-based Hanjin Shipping, one of the world's top container shippers, carrying more than 100m tonnes a year.
Furthermore, subsided pre-Christmas imports left Australia with fewer containers to re-export than has been typical.
And what containers there were are of the larger 40-foot length difficult for the Australian logistics chain to handle.
"Not many domestic packers can handle 40-foot containers, road weight restrictions means that they can only be half filled and a lot of destinations throughout Asia don't have the infrastructure to manage the larger boxes," Mr McMeekin said.