Australia is expected to produce 21.9 million mt of wheat in the 2018-19 (October-September) season, up 3% from 21.2 million mt in the previous season, despite a slight drop in acreage due to constrained planting intention from dry weather, the Australian Bureau of Agricultural and Resource Economics and Sciences said in its June crop report released late Tuesday.
ABARES' estimates assume timely and sufficient winter rainfall, particularly in areas where below average winter rainfall is likely.
Australia experienced the third-driest May on record and June is likely to be drier than average for much of the country, according to the Bureau of Meteorology.
"Although the outlook for 2018-19 winter rainfall is currently unfavorable, it is still very early in the 2018-19 season and below average winter rainfall that is timely may be sufficient to lift yields from last year," ABARES said in its report.
However, a US Department of Agriculture, or USDA, supply-demand crop forecast released late Tuesday put Australian wheat production at 24 million mt and exports at 17 million mt for the 2018-2019 harvest season.
Planting season in Australia's wheat belt is typically between April and July. Australian farmers across the major wheat producing regions have been sowing in dry soil and planting has slowed in certain areas due to insufficient rainfall.
In Western Australia, the largest wheat exporting region in the country, wheat production is forecast to increase by 2% to 8.1 million mt, though timely and sufficient rainfall will be required to ensure even crop germination and development.
Strong domestic feed grain prices are expected to encourage planting of cereal crops, but low levels of soil moisture and a poor rainfall outlook is expected to limit the ability of producers to fully realize winter planting intentions in the east, the report said.
In Victoria, despite a forecast increase in the area planted with wheat, production is forecast to decrease by 23% as yields are assumed to fall from last year because of unfavorable seasonal conditions.
As a result, traders expect the ongoing interstate wheat movement from the west to east to persist. If domestic feed grain prices remain strong, Asian exports will have to continue competing with domestic demand to secure their grains, sources said.
SOUTHEAST ASIAN BUYERS ON THE SIDELINES
In recent weeks, Southeast Asian buyers have been on the sidelines, eagerly waiting for further rainfall to ease concerns and prices of Australian wheat.
"We still have some stock so we are trying to use as less as possible. Those who are buying APW currently have no other option," a Southeast Asian buyer said, referring to the inelastic demand of Australian wheat for noodle making.
Another major Asian buyer said: "We are waiting and keeping a close eye for now, fearing a time will come when prices will remain high and we will have no choice but to purchase."
Liquidity of Australian wheat on an FOB basis for exports have thinned considerably, as farmers continue to hold on to existing stocks awaiting further clarity on new crop yield. Supply of certain grades, such as Australian Standard White, have also tightened as the season comes close to its end.
Platts APW wheat was assessed at $257/mt FOB Kwinana Tuesday, the highest year to date and a 10-month high.
Meanwhile, a notable decrease in the global wheat supply estimate by USDA saw the US CBOT soft red winter wheat futures rally overnight. The US CBOT July futures surged by 20 cents/bushel, closing at 534.40 cents/bushel on Tuesday.
USDA's estimate is attributed to lower production in Russia, which is estimated to decline by 3.5 million mt to 68.5 million mt on drier-than-normal conditions in winter wheat areas and excessive wetness in spring wheat regions. The projection is a 19% decline from last year's record 85 million mt.
Several Asian buyers have expressed concern on rising global wheat prices squeezing their margins. "We have been trying to raise our flour prices but there is a strong reluctance from end-users -- its currently our biggest struggle," a Northeast Asia miller source said.
