Unprecedented grains price jump as farmers in Australia and US battle dry conditions

04.07.2017

Wheat prices have increased up to 20 per cent in Western Australia, with global supply forecast to shrink.

The critically dry conditions across southern Australia and a forecast drop in wheat supply have caused grain prices to surge.

Grains trader Charlie Brown said the price of wheat had risen by up to 20 per cent in recent weeks.

But Mr Brown said he was not sure if the price rise was sustainable.

"It's been a big move and almost an unprecedented move in such a short period of time to have markets rally so strongly," he said.

"I know it's a tough time for Aussie farmers … so the challenge is trying to have confidence in selling at these prices, knowing that there's always the risk we could go higher.

"But the way we're priced today, there's actually a bit of risk we could go lower reasonably quickly as well."
Dry season across country

Mr Brown said the move had come off the back of dry seasonal conditions across Australia.

"June was dry across most of the grain belt across Australia, in some parts, the driest [June] in history," he said.

"So the outlook for the crop in 2017/18 is not that positive today."

But Mr Brown said the price rise had also been dictated by trade markets in North America, particularly the Chicago Board of Trade, Kansas City Board of Trade, and the Minneapolis Board of Trade.
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He said dry conditions in the United States and Canada had driven prices up.

"Minneapolis wheat is up nearly 50 per cent during the month of June," Mr Brown said.

"So they've just had some really bad weather and the production was looking small compared to what we thought initially."
Wheat yield forecast to drop

Forecast data from the National Australia Bank (NAB) shows Australian wheat yields are expected to drop by more than a third in 2017.

According to NAB figures, the dry start to winter for most grain producing states will have a severe effect on total production compared to last harvest.

But NAB agribusiness economist Phin Ziebell said the drop in yield was not as severe as it looked, because the last Australian crop harvest was the highest yielding on record.

"Behind the headline one-third drop in production is a story that's not quite so grim," he said.

"Because when you look at last year's production of over 35 million tonnes, that was a record, a spectacular result.

"It was 6 million tonnes clear of the previous record."

Mr Ziebell said NAB had estimated this year's crop would come in at 23.3 million tonnes, which was just below the average Australian season, which would yield 24 million tonnes.


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