Troubled Aussie wheat creates new wrinkle

The supposed saviour of the wheat market is in trouble.

Heavy harvest rain is causing extensive quality damage to Australia’s crop in northern and central New South Wales and Queensland, said MarketsFarm analyst Bruce Burnett.

“It is not a good situation there,” he told participants attending a recent webinar.

The re-emergence of La Nina is responsible for 50 to 100 millimetres of rain falling at an inopportune time in those two key production states during the first half of November.

More rain is in the forecast for the second half of the month.

Australia primarily grows white, soft wheat, which is even more subject to sprouting than durum under wet conditions.

Preliminary sampling results show low falling numbers for the crop and a significant reduction in overall quality compared to last year.

“That is going to have a major impact on the wheat market coming forward,” said Burnett.

“The market had been counting on a good Australian crop to backfill some of the shortages that we’ve seen so far this year in the wheat market.”

Burnett was asked if Canadian hard red spring wheat prices could top $15 per bushel.

He said there would need to be a repeat of 2008 when already tight supplies were made worse by problems in two major winter wheat production areas.

He noted that seeding has been slow in China’s central production region and it is dry in portions of the southern U.S. Plains, such as Oklahoma and Texas. However, there is nothing too alarming yet.

SovEcon is forecasting 27.1 million tonnes of Ukrainian wheat production in 2022, down 4.8 million tonnes from last year’s bumper crop.

Winter wheat yields are expected to be “substantially below trend” in that country due to below-normal rainfall and extremely dry soil.

“Plants are in poor shape now ahead of winter due to lack of precipitation (50 to 70 percent of the norm) and potentially lower fertilizer application,” managing director Andrey Sizov Jr. said in an email.

He thinks Ukraine’s exports will be down four to five million tonnes year-on-year.

Russia’s 2022 wheat crop is estimated at 80.7 million tonnes, up from this year’s disappointing harvest of 75.3 million tonnes.

“In key regions crops are in good shape,” said Sizov.

He thinks the bullish sentiment surrounding Russia’s wheat crop today, due to the government announcing potential additional export restrictions, could turn bearish in the second quarter of 2022 if decent weather conditions prevail.

Burnett doesn’t think $15 is in the cards for western Canadian growers based on current conditions, but $14 is certainly achievable given today’s supply and demand dynamics.

Wheat ending stocks for the world’s major exporters has been declining since 2017 and has dropped below 50 million tonnes for the first time in years.

He expects production from the major exporters to jump 14 million tonnes in 2022, but ending stocks are down 12 million tonnes heading into the new crop year, so the supply situation is not going to change much at all.

Soil moisture conditions have improved dramatically in the northern U.S. Plains, but there is plenty of competition from other crops. This means spring wheat plantings will likely rise by only 1.1 million acres or so.

It is still dry in many of the wheat growing regions of Western Canada. Burnett is forecasting a 300,000 acre reduction in spring wheat in 2022, but durum plantings will likely increase by about 600,000 acres.

Contact sean.pratt@producer.com