THE Australian wheat crop is sliding as a dry spell hits most of the country.
Parts of south eastern Australia are coming up to a month without effective rainfall, and this is on top of a growing season shortfall in rainfall of 50 to 80mm in many parts of South Australia and Victoria.
Frost is also an issue for South Australia and Victoria. Many crops are well advanced after a mild start to the season, early sowings, and now dry conditions pushing crops to head. With the frost season extending into October, the dry conditions are increasing the vulnerability of many crops again this year.
Dry finishes to the season are becoming the norm. In some southern regions, spring rains have been below average for eight of the last 10 seasons. Over the same period the losses from frost have also increased.
This year, yields are again being lost to frost, and crops are being cut for hay either because of frost issues, or a belief that this will generate more income than going through to grain.
However, while this will impact Australian production at the margin, it is the shortage of growing season rainfall which will have the biggest impact on total production.
In combination with the Black Sea, the dry in Australia is now a regular feature in daily market commentaries. The outlook in both regions was a contributing factor to the sharp midyear rally this year, but that quickly faded as conditions in the Black Sea improved, and as the El Nino event seemed to be having little impact on rainfall, particularly in NSW.
Well, El Nino is now back on the agenda, with some in the market thinking that they had dismissed its impact a little too early in the year.
US wheat futures bottomed out in early September, and then staged a corrective rally. The market has since tried to fall a couple of times, but each time the concerns about the Black Sea and Australia have reversed the move. US futures (in US$ terms) are now back to levels seen in the first half of August, and in A$ terms prices are back to levels last seen in the third week of July.
Unfortunately for Australian growers, a drop in basis levels has not allowed our cash prices to recover to July levels. If basis levels were the same as they were in July, we would be seeing prices around the mid to high $280’s delivered Port Adelaide, and well over $300 per tonne on the east coast from Melbourne around to Newcastle.
Instead, prices are about $20 per tonne below those levels, and robbing growers of an important buffer against a yield sapping dry finish to the season.
Eventually it will either rain in the Black Sea or here, or it will get to a point where the prevailing conditions are fully factored into the market, and the rally will stall. Then we will be vulnerable to downside, particularly as the northern hemisphere crops enter dormancy, and as our own harvest gets underway and growers begin selling.
How well our market holds up might be in the hands of growers. Too many sellers at lower prices will make it hard for prices to rally, but if growers become reluctant sellers, it may be enough to support basis levels, and deliver better prices than otherwise might be the case.
Malcolm Bartholomaeus is the market analyst for Bartholomaeus Consulting, Clare, South Australia.
