Reduced global supply of cereals will see continued demand for Australian grain into new world markets
According to Rural Bank’s Australian agriculture mid-year outlook, estimated wheat production of 30.5 million tonnes is a year-on-year decline of 21% but remains 17% above average.
However, it should be pointed out there is wide discrepancy in the estimated harvest for season 2022-23 at this early stage of proceedings, with some pundits predicting record results.
Most states have had a favourable start to the season, but there are areas of concern in northern New South Wales where excess rainfall has caused waterlogging.
Overall, prospects are positive across most cropping regions to achieve above average production for the third consecutive season.
The United States Department of Agriculture (USDA) forecasts global wheat production to decline one per cent from last year.
Reduced production in Ukraine and Argentina is offset by increases to wheat produced in Canada, Russia and the United States, but global wheat carryout is still forecast to fall by 5% to its lowest level in six years.
Recovery from drought in Canada is the predominant reason for UDSA’s estimated 3% year-on-year barley production increase.
Increased Canadian and Russian production will more than make up for reduced production in Ukraine and Australia.
Demand is high
Domestic demand for feed grains is expected to remain firm in the coming six months as the cattle herd continues to rebuild.
Increased beef supply will support domestic demand for grain in feedlots, though positive seasonal conditions for pasture will ease requirements for supplemental feeding.
Increased production in key exporting nations is expected to see more wheat available globally for export over the upcoming season.
However, uncertainty around reliability of supply will see demand for Australian grains remain strong. Damage to infrastructure caused by Russia’s invasion of Ukraine casts doubts on Ukraine’s ability to export even reduced estimates of 10 million tonnes.
Even if hostilities cease, rebuilding the supply chain back to its previous capacity will take months or years. With global supply remaining tight for the foreseeable future, export demand for local wheat will remain strong, particularly into Asia where Australia enjoys a freight advantage.
Based on current production projections and carryout estimates, Australia is forecast to export 24 to 25 million tonnes of wheat in the upcoming season.
Barley exports are projected to reach 7.5 million tonnes in the 2022/23 season, down 12% on current season estimates but 24% above average.
Middle Eastern demand for feed stocks will support Australian barley exports due to its lower origination costs and reliability of supply.
Malt barley exports are expected to decline in the coming season as improved North American production will step in to supply South American demand that Australia has filled while Canada and the US have been in drought.
Left table: Monthly average Geelong APW1 wheat values forecast at 68% confidence interval. While the right table shows the monthly average also shows Port Adelaide feed barley values forecast at 68% confidence interval. Source: Profarmer Australia, Rural Bank
Prices at high levels
Australian wheat prices are expected to remain above decile 9, or in the top 10% of prices seen historically. Australian Premium White (APW) grade wheat is forecast to remain around the $400 per tonne mark for the balance of the season.
Some softening of prices is expected as northern hemisphere harvest eases immediate supply shortages. Global prices are anticipated to remain volatile as markets are directed by news of production and supply prospects.
Local prices will continue to trade at negative basis – that is below global wheat prices – as available supply in Australia tempers upside influence by international price movements.
Barley prices are expected to ease 10 to 15% from current levels, but feed barley prices are anticipated to average above $300 per tonne through to 2023.
As a cheaper alternative to wheat, strong global demand for feed stocks will support local prices but plentiful supply will moderate upside.
High global prices, low international supply and strong export demand will continue to hold Australian cereal prices at high levels, though local growers’ margins will be squeezed by the high cost of inputs.
The world’s two largest suppliers of fertilisers in Russia and China both have partial or complete restrictions on exports. There has been some lifting of restrictions that has lowered prices since peaking in March 2022, but price volatility will continue based on the whims of the major exporters.
Urea and phosphate prices have eased but are anticipated to remain above average for the foreseeable future as supply from major suppliers remains constrained.
Improved Canadian production is expected to see export demand for Australian canola ease from demand points in the Middle East and Sub-Continent where Australia has captured market share during Canada’s drought.
Table on the left shows monthly average Kwinana non-GM canola values forecast at 68% confidence interval, while the right side table show the monthly average Brisbane chickpea values forecast at 68% confidence interval. Source: Profarmer Australia, Rural Bank
Though strong demand from traditional European buyers will consume an exportable surplus of around five million tonnes, a 21% year-on-year decline from this season’s estimated 6.3 million tonnes.
Fundamental supply and demand factors will remain supportive of canola prices through to 2023. The elevated cost of crude oil will continue to support demand for biofuels.
Uncertainty around Ukraine’s production and ability to export sunflower and canola will also offer support for the broader oilseed complex and elevated pricing.
But improved canola production prospects in France and Canada will alleviate the global oilseed shortage seen this season. Australian prices are forecast to soften 15 to 20% heading into the last quarter of the year.
Strong demand should see prices above $800 per tonne sustained through to the end of the year, well below the $1,000 plus prices seen recently but still historically high.
Pulses not as popular
Production of pulses is forecast to decline 24% year-on-year due to a combination of reduced planted area and lower yields.
Despite an estimated increase to planted area for lentils and faba beans, lower forecast yields will result in production declines of seven and 15% respectively.
Lower planted area and yield estimates are expected to see production down for chickpeas (-33%), lupins (-30%) and field peas (-27%).
Pulse exports in general are suffering from supply chain issues with the high price and availability of containers. These issues will continue to hamper pulse exports and subdue pricing for the remainder of the year.
Chickpea markets have been affected by supply chain issues with reliability and cost of container freight limiting demand from major buyers in Bangladesh and Pakistan.
Demand is unlikely to pick up in the second half of the year with India’s chickpea production
expected to increase 17% year-on-year. Australian chickpea prices are anticipated to remain between below $500 per tonne for the rest of the year.
Lentils have been the standout performer of pulses this season, with prices regularly pushing $1,000 per tonne. Canada is the largest producer and exporter of lentils, and Australia has capitalised on reduced production due to drought.
Demand from Bangladesh, Egypt and India where the lentil import tariff is reduced to zero will remain in the near term, as will prices above $900 per tonne. But improved Canadian production is expected to see demand for Australian lentils wane heading into 2023 as Canadian supply comes online, and a possible decline in prices closer to $800 per tonne.
Faba beans are also expected to be favoured as a preferred pulse crop in 2022/23 for agronomic reasons as they require less fertiliser and are a lucrative rotation crop.
Prices have remained consistent, if not spectacular around $450 per tonne as Egypt has maintained steady demand for bulk shipments of faba beans.
Food price and security is a major concern for Egypt who is typically a major purchaser of Black Sea origin grains. This is expected to see strong demand remain for Australian faba beans over the next six months.
While supply chain constraints are likely to temper upside potential, prices are expected to average around $400–$450 per tonne for the rest of the year.