Australia eyes bumper wheat harvest but rains, Ukraine exports darken trade outlook

Australia’s wheat output in the marketing year 2022-23 (October-September) is likely to see its third straight year of bumper harvest, leading to robust exports, but Ukraine making a comeback could dent Australia’s share in Asia, traders and analysts told S&P Global Commodity Insights.

Though Australia is a key supplier of wheat to Southeast Asia, with Ukraine resuming grain exports, market participants are focusing on Asia’s purchases of Black Sea wheat.

According to market participants, when Ukraine started offering wheat in Asia in early-August, payment and banking issues as well as high freight cost and insurance were key concerns. However, as the flow of ships from Ukraine increased, confidence in cargo execution has grown, an Indonesian buyer said.

Output seen bumper

According to a survey of traders and analysts, Australia’s MY 2022-23 wheat harvest is seen at around 34 million to 36 million mt. At this level, the crop is likely to be second-highest on record.

“During the planting and cultivation process, the crop received adequate showers which boosted grain yields,” a trader with a multinational firm said.

Western Australia, which exports most of its grain as the other regions produce mostly for the domestic market, is expected to reap between 10.5-13 million mt for the new crop year, sources said.

The Grain Industry Association of Western Australia has projected Western Australia’s wheat output at 10.3 million mt for MY 2022-23. The association had pegged the production at 12.9 million mt in MY 2021-22.

“An expected better output is likely to ease the supply tightness in the global market as it may also increase the export volumes and supply cheaper wheat to Southeast Asia,” a trader based in Western Australia said.

Australian Bureau of Agricultural and Resources Economics had projected the country’s wheat harvest in MY 2022-23 at 30.3 million mt, down from 36.3 million mt estimates for MY 2021-22.

The US Department of Agriculture projected Australia’s wheat output at 33 million mt in MY 2022-23, against 36.3 million mt in MY 2021-22.

IKON Commodities has pegged wheat output in MY 2022-23 at 35.8 million mt, down from their estimate of 39 million mt last year.

Concerns remain over quality

However, there are some concerns over the crop quality as heavy showers may dilute protein content in the grain.

The Australia Bureau of Meteorology has forecast higher-than-average showers over the next few weeks which may increase the moisture content in the crop.

Premium quality wheat output is likely to decline in MY 2022-23 as heavy showers led to flooding in the most parts of New South Wales and Queensland, a trader from New South Wales said.

“Despite concerns over the quality of the crop, the export potential is likely to remain high as the global supply is tight,” the trader added.

Market participants are also keeping an eye on the early onset of frost in Western Australia, New South Wales and Queensland.

“If frost sets in early in September, the downside risk was about 1 million mt to 2 million mt reduction in the harvest,” an official with an international trading firm said.

CBH Group announced in July that they have added a 9% minimum protein wheat grade called ASW9 this season because of the large volumes of low protein wheat produced in the last marketing season and to meet export demand.

The current APW-ASW no protein spread is at $28/mt Aug. 31 but the record was in Nov. 23, 2021 when it reached $47.5/mt as wet weather during harvest diluted protein levels and amid facing fierce competition from India.

Platts assessed APW wheat FOB prices at $359/mt on Aug. 31, down $6 on the day and ASW wheat FOB prices were at $331/mt on Aug. 31, down $9 on the day, according to S&P Global data.

Industry players are expecting spreads to reach record levels again due to strong crop expectations in Western Australia. “If it is a soft finish, yes it is possible,” one exporter said. A soft finish refers to presence of spring rain and cooler temperatures with no stress on the wheat plant.

Exports in focus

On the export side, traders and analysts believe shipments to be at around 26 million-27 million mt, largely at par with last year.

The USDA has pegged Australia’s wheat exports at 25 million mt in MY 2022-23, compared with 27.5 million mt in the previous year.

However, traders fear the logistical issues — storage facilities and port backlogs – may curb export potential.

“The current port backlogs are leading to a delay in the shipments. Currently, the delay is around one month,” a trader with the multinational firm added.

Though a big crop is expected, views about Australia’s market share in the Asia-Pacific is divided with Ukraine resuming exports. Although the country is only showing prompt September-October shipments and the market is generally well covered for those months, some buyers are waiting in line for the offers for shipments from January onwards before placing orders.

Delivered prices of Ukraine wheat has also fallen as a result. CFR Indonesia 11.5% Ukraine wheat offered at $380/mt at the start of August is now at $355/mt Aug. 31.

However, with reports on Turkey raising transit costs through Bosphorus Strait, some market participants reckon Ukraine’s exports may be impacted as well, as it will increase the CFR costs to Southeast Asia.

Tags: grain, crop forecast, Australia