Wheat is in strong demand on the back of supply and food security concerns

Global trade goes on a 'just in case' buying spree

Cropping
As harvesters roll across the nation, world wheat prices are at levels not seen since 2014.

As harvesters roll across the nation, world wheat prices are at levels not seen since 2014.

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Global traders are concerned about dry conditions in the northern hemisphere impacting food security.

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Global grain markets have continued 'heading north' again this month.

Chicago Board of Trade (CBOT) wheat, corn and soybeans have posted month-to-date gains of 11.2 per cent, 11.4 per cent and 6.6 per cent respectively.

For wheat, this puts prices at levels not seen since 2014.

Concerns about dry conditions in the USA, Argentina and the Black Sea region are coinciding with ferocious 'just in case' grain buying - and to offset potential food security challenges.

As the Australian harvest starts - with recovery to above average production ahead - this global dynamic will be the key to keeping local prices supported.

Despite some parts of the Black Sea region and the US receiving rain during the past fortnight and winter wheat planting progress improving - or catching-up - in both regions, large areas remain dry. This is threatening adequate crop establishment before winter.

Southern Russia reportedly received its lowest rainfall for two decades in September.

The situation in Ukraine has improved, but planted area will still likely be lower and the active La Nina raises the risk of returning dry conditions.

Meanwhile, dry weather during the past few months has damaged yield prospects in Argentina.

The country's Rosario Board of Trade has downgraded its wheat crop forecast by six per cent this month to 17 million tonnes, and other analysts in Argentina have downgraded estimates by more.

Coinciding with these supply downgrades and uncertainties are COVID-19 concerns.

Governments continue to favour stock-building to quell domestic food price inflation and ensure food security.

China and Pakistan - both of which have seen double-digit food price growth since March - have been particularly active buyers, and North Africa and the Middle East have also featured prominently in the buying spree.

Turkey has suspended its import tariffs on wheat - as well as on barley and corn - until the end of the year, and the possibility of Russia lowering its export quota for next season remains on the radar.

With strong purchasing and uncertainty regarding 2020-21 wheat supply, we have lifted our CBOT wheat forecast to US615 cents a bushel for quarter four this year and expect trading towards US580c/bu during the first half of 2021.

'Front-end-loading' of annual requirements by buyers - coupled with new crop supply in 2021 - will underpin softening as 2021 proceeds, but to levels that are still well above the five-year average.

Australia's winter crop harvest has started and all efforts are being directed towards getting the tonnes in the bin ahead of a forecast wet November and December.

We expect a 63 per cent year-on-year increase in national production to 47.4 million tonnes, which will be 12 per cent above the five-year average.

This will include 28.8 million tonnes of wheat, 11 million tonnes of barley, 3.3 million tonnes of canola, 1.5 million tonnes of oats and 2.7 million tonnes of pulses.

Heavy storms this past week, especially in northern New South Wales and southern Queensland, have taken the shine off yields for some, and downgraded quality prospects for others.

The national supply recovery puts Australia within 16 per cent of the 2016-17 production volume - and for NSW, within one per cent of that year's record production.

But we do not expect 2016-17 domestic production volumes to bring 2016-17 low prices.

Compared to 2016-17, we expect global wheat prices to be about 35 per cent higher and the Australian dollar to be 10 cents lower during the year ahead.

Add to this the local restocking required following consecutive years of drought, and we expect wheat prices to remain in touch with five-year averages.

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