WA wheat crop forecast dives

The big losses are in WA, where the northern harvest is 50 to 70 per cent complete, and yields are 50pc under recent averages. In central regions yields are 25 to 30pc below average. Southern parts of WA have had a better season, but yields are still expected to be below average.

Total grain production in WA is pegged at 11.42 million tonnes, down just over 500,000 tonnes from October estimates and down 36pc year on year.

Most of the current downgrade is occurring with wheat, where 410,000t has been removed from the previous estimates from their state-based grain industry body. At 5.85mt that represents a 40pc reduction on last year's output.

It is also 2.2mt under the ABARES estimate for WA published in September. That alone is enough to push the Australian wheat crop below 17mt, from the 19.1mt ABARES forecast in September.

The season in eastern Australia will partially compensate for the drop in WA but not completely. GrainCorp has suggested that total winter grain production in its catchment zone will be 11.5mt, up from 6.5mt in 2018/19.

Not all that increase can be attributed to wheat, so the lift in wheat production will not be enough to cover the reduction in WA. The east coast wheat crop might be up by 3.2mt, but the WA crop is likely to be down by 4.3mt.

The fortunes for the national crop compared to last year may well be determined by the outcome in SA. ABARES was suggesting an 800,000t year on year lift in its September forecasts. That might be difficult to achieve given the amount of crop cut for hay, and losses from a dry finish and pockets of frost damage.

With the smaller crop in WA, not a lot of grain is expected to be shipped from WA to eastern markets this year. WA prices will have to keep very much in touch with global prices.

Grain shortfalls in NSW will be covered from Vic, and topped up from SA. In theory the market will structure itself to offer a small premium to export values in SA to make sure enough wheat moves into Vic and direct into NSW.

East coast prices should reflect export values, plus that small margin, plus the transport costs. However, demand will be lower because of ongoing destocking, and some demand will be filled by imports now that this pathway is firmly established.