Extended dryness in Australia buoys spot wheat prices

06.06.2017

Offers for Australian Premium White prices were trending higher Monday than last Friday, seen up about $3/mt in South Australia, as extended dryness and a bleak outlook propped up old crop prices, traders said.

Although there were limited offers from Western Australia, the country’s major exporting state, amid a state public holiday Monday, traders expect the uptrend in offers there to be similar. Australia’s Bureau of Meteorology in its latest drought statement Monday said serious to severe rainfall deficiencies were recorded over March 1-May 31, particularly near the west coast of Western Australia and on the Eyre Peninsula in South Australia, both major wheatbelt areas.

The bureau said rainfall in May was mostly below average for most areas in Western Australia, with large tracts of the west coast and the interior in the lowest decile, or the lowest 10% band of rainfall based on historical observations.

Rainfall was also below normal in central South Australia, Victoria and northwestern New South Wales, the bureau said.

Meanwhile, a drier-than-average weather outlook for June-August — with rainfall forecast to be below average over most parts of Western Australia, western NSW and Victoria, is weighing on prospects for new crop, traders said. This could impede grain development and yield as that is a key growing season, they added.

“If dryness persists during June, yield could be affected as top and lower soil moisture is inadequate for the crop to grow strong and rooted,” said a trader.

Production for the coming season could face downside risk given the unfavorable weather forecast and expectations of significantly lower yield, even though the new crop planted is of similar acreage to the previous season at just over 22 million hectares and the yield set to be in line with the five-year average, according to Rabobank.

Australia is forecast to produce about 24 million-25 million mt of wheat in 2017-18 (October-September), down 30-32% from last season, according to major grain forecasters including the US department of Agriculture on May 11 and the Australian Bureau of Agriculture, Resource Economics and Rural Sciences or ABARES on March 7.

Lower production in Australia could potentially help steady global wheat prices, which hit a 10-year low in the third quarter of 2016 amid record high global stocks.


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