Wheat exports slow to a trickle as Indonesia looks to Black Sea

13.02.2018

Australian wheat exports have slowed to a trickle as traditional markets in Southeast Asia turn to cheaper alternatives.

The biggest impact on wheat sales has been Indonesia's rapid embrace of wheat produced by Russia and Ukraine in the Black Sea region.

Australia exported about 800,000 tonnes of wheat in January, a month when shipments of new season crop are regularly around the two million-tonne mark.

Figures compiled by Australian Crop Forecasters show shipping volumes from West Australian ports operated by CBH, Australia's biggest grain exporter, were down by more than a million tonnes compared to the same time last year.

The storage and handling co-operative loaded a little over one million tonnes compared to 2.231 million tonnes in January last year.

The biggest drop was in wheat, down from 1.04 million tonnes to 363,255 tonnes.

Some of the fall is explained by the size of the 2017-18 winter crop falling from record levels, but industry analysts said wheat prices were the biggest factor.

Commonwealth forecaster ABARES released figures today showing grain production fell 36 per cent to 37.8 million tonnes in 2017-18.

Wheat production was down 38 per cent to 21.2 million tonnes, but the result is not as far below the long-term average of about 23 million tonnes as expected.
Major challenges

CBH head of marketing and trading Jason Craig said Australia was facing challenges in Indonesia, the world's biggest importer of wheat and traditionally Australia's biggest market.

"The big story in this is Indonesia. Demand from Indonesia has been very slow for Australian wheat," he said.

"Australian wheat has been uncompetitive compared to the Black Sea. The Black Sea had a very aggressive shipping program through the last part of last year and certainly has continued that in beginning of this year."

The Black Sea is displacing Australian wheat throughout Southeast Asian markets, including Vietnam and Malaysia, where it is about $US25 ($31.80) a tonne cheaper.

In the meantime, Australian farmers and traders are holding on to millions of tonnes of wheat worth billions of dollars in the hope of better prices than the $270-$280 a tonne free in store being offered in WA in recent weeks.

Australian Crop Forecasters founder Ron Storey said any problems with wheat crops in the northern hemisphere could see prices rise.

"On the back of a good year last year, cash flow-wise farmers are not as desperate or keen to have to convert their grain into cash," he said.

"If we see that [northern hemisphere] crop shrink, then prices will likely strengthen. If we see them get some rain in March-April, it would indicate we are going to have another big crop in northern hemisphere in which case there would be a slim chance of seeing price improvement."
Chinese demand

A silver lining for Australian grain growers has been feed and malt barley exports at prices touching those for wheat.

Emerald chief executive David Johnson said the demand for feed barley from customers in China had been a shining light for the industry so far this year.

Australian barley is tracking in line with its three-year shipping profile with 550,000 tonnes exported in January.

The rise of Black Sea wheat in Southeast Asia has been helped by the lower rouble and reduced freight rates.

Mr Craig said a lower Australian dollar would help to narrow the gap in wheat prices.

"My view is it will narrow over time and Australian [wheat] becomes more competitive. Their prices are starting to firm and our prices are coming down a touch," he said.

The Australian industry has been aware of the threat posed by the Black Sea for some time but had been counting on the better quality of Australian wheat and long-standing relationships with flour millers to at least retain its share of the growing Indonesian market.

"No one really foresaw, and I don't think the Russians foresaw, how big their crops were going to be and how quickly, particularly in wheat," Mr Craig said.

Internal CBH forecasting shows demand growth in Australia's contestable markets, the Middle East, the subcontinent and Asia, being outstripped by growth in global wheat production led by the Black Sea and Argentina.


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