HOW long will the dry spell continue? It’s a question we ask ourselves each week. And if we trust the latest Bureau of Meteorology climate outlook, it looks as though the August to October period is going to be warmer and drier than average for the eastern seaboard.
This paints a further ugly picture for all those in the eastern states who are struggling, and have been for many months.
August will be a crucial month for not only the eastern states, but for Australia as a whole.
Conditions in Western Australia remain average to above average in most spots across the state, which has implications for our east coast market.
As it stands today Western Australia will still have an exportable surplus, so the market on the east coast is capped by the freight differential to ship wheat from Western Australia to NSW and Queensland, this is about $100 to $110 a tonne.
This is why August will be key for everybody, because if the West Australian crop starts to struggle, this price ceiling on the east moves higher.
If the Western Australian crop falls over and they end up without an exportable surplus, we will have a sustained rally in Australia not seen in many years.
However, we can’t get ahead of ourselves because as it stands today the west looks good, and farmers are happy to forward sell at historically high values for cereals.
Similarly, on a global scale there are weather concerns throughout Europe and the Black Sea that are certainly gathering plenty of attention. This is the “other” ceiling in the market that can provide us with a sustained rally in global markets.
There has been plenty of commentary lately on tightening world wheat stocks and there is no denying that this is happening; the tides in wheat have started to turn.
This year we won’t see a record Russian or Ukrainian wheat crop and Europe, Canada, and the US are all battling through sweltering temperatures.
So what does this means for you, the Australian farmer? Well, much the same as the West Australian story, if the world wheat crop continues to decline we will see the price ceiling move higher.
If we continue to experience trouble in the big exporting nations (US, Canada, Europe, Russia, Ukraine), we will see sustained wheat rallies.
The trouble is needing these production problems in the exporting countries to align to a bumper year on home soil.
Fingers crossed it’s this year for some and next year for east coast of Australia.