Rain boosts Australia’s wheat production outlook but weak Chinese demand looms

Rainfall across much of Australia has improved the outlook for the country’s 2024/25 wheat production but demand for the crop from China could be very weak, analysts and traders said.

Australia is the world’s fourth-biggest wheat exporter. A bigger harvest would add pressure on prices that are already the lowest since 2020 due to plentiful global supply.

Cropping zones in west and south Australia were very dry when farmers planted seeds in May and June but rain has since fallen in most areas.

“The wheat crop is on track for 30 million (metric) tons,” Stefan Meyer, who heads a grains trading team at brokers StoneX, said on the sidelines of the Australian Grains Industry Conference in Melbourne.

“It’s had a massive turnaround. A while ago I was thinking closer to 25 million tons,” he said.

Australia produced 26 million tons of wheat in 2023/24, a relatively dry year, and 40.5 million tons in the much wetter 2022/23 season, government data showed.

While rain has fallen, root zone soil moisture remains low in some parts of Victoria, South Australia and Western Australia, leaving those areas vulnerable if rain does not continue.

“Probably there’s a slight downside risk from 30 million tons,” said Tim Crowe, head of Asian wheat and barley research at trader Louis Dreyfus.

The biggest risk for Australia is low Chinese demand, he said: “Record imports have been going on in the last few years but they could drop off drastically.”

He said there was no replacement market for China.

“It is going to have a significant impact on Australian prices at harvest.”

Adam Clarke, director of brokers AC Grain, said Australia had, to the best of his knowledge, not sold any new-crop wheat to China.

Many farmers and analysts anticipate that a La Nina weather event will form later this year, bringing wetter weather to eastern Australia, but Crowe said that was now unlikely.

No La Nina would decrease the risk that rainfall during the harvest, which ramps up around October, would lower the quality profile of Australian wheat.

Tags: China, Outlook, Production, wheat, crop, demand, Australia