Australia’s bumper wheat crop cuts prices for hungry Asian markets

What looks to be a record-breaking year for wheat production in Australia has brought down international prices driven up by poor weather and the war in Ukraine, drawing attention from China and other Asian buyers.

The U.S. Department of Agriculture expects Australia to produce 36.6 million tonnes of wheat in its 2022-23 marketing year, an all-time high. After a smooth planting season, growing areas have received plentiful rain. Concerns that heavy rainfall during the harvest season might affect quality did not change the USDA’s forecast.

High wheat prices were a driver of last year’s soaring inflation in many countries, prompting warnings of a global food crisis. Now, market pressures are easing.

Much of Australia’s wheat goes to Asia, which accounts for one-quarter of global wheat imports, and particularly China, the region’s top consumer of the grain.

China imported 7.87 million tonnes of wheat overall from January to October, stocking up for year-end and early 2023 consumption, Chinese customs data shows. Around 60% of the total, or over 4.9 million tonnes, came from Australia, up from 1.9 million tonnes, or about one-fifth, a year earlier.

“The quality of Australian wheat fits well with China’s need for wheat to make noodles,” said Ruan Wei of Japan’s Norinchukin Research Institute.

Price is a factor as well. Australian wheat cost China an estimated $370 a tonne in October based on Chinese customs data. This is cheaper than the $440 or so paid for wheat from the U.S., where worries about poor weather reducing output have kept prices elevated. Market watchers at Japanese trading houses see Australian wheat exports as increasingly competitive both for food and animal feed.

Meanwhile, shipping conditions in China have improved. A shortage of truck drivers hindered transport from ports to inland areas early last year, forcing ships to wait for up to 30 days to unload grain cargoes.

“Now, truck drivers are coming back as the coronavirus outbreak settles down, and wait times for ships are down to a few days,” said a representative at Japanese shipping broker Exeno Yamamizu.

The additional supply from Australia is helping to bring prices down. Wheat futures in Chicago have returned to their levels from before the war in Ukraine disrupted supply, hovering around 15-month lows in the low $7 range per bushel.

Asian imports of Australian wheat are expected to keep growing. Shipments from the Southern Hemisphere tend to increase around the start of the year, but Argentina’s crop has been sharply reduced by drought. Demand for Australian wheat is brisk from price-conscious Southeast Asian countries such as Indonesia.

“There are differences in quality. But looking at the numbers, Russia is filling the gap left by Ukraine in the Black Sea region, and Australia for Argentina in the Southern Hemisphere,” said Hideki Hattori, chief grain analyst at Japanese flour miller Nippn. “The market is searching for a bottom.”

Food price inflation threatened countries worldwide last year, with poor weather compounded by the impact of the Ukraine conflict. But it appears to be easing. The Cereal Price Index from the United Nations Food and Agriculture Organization fell for a second straight month to average 147.3 in December, down 15% from the May peak.

Because some Australian wheat is used for animal feed, there are hopes that the trend could help cool prices for some animal products as well.

Tags: Australia, China, prices, weather, Production, wheat, Asia