AgResource pegs Australian wheat production at 22.9 MMT, down slightly from the latest USDA and ABARES estimates, and down a full 12 MMTs (35%) from last year’s record. This issue for now is the lack of precip seen since early summer across the eastern half of Australia’s wheat region. Assuming today’s forecast verifies, combined July & August rainfall in NSW, which accounts for third of Australia’s total wheat crop, is at left.
Vegetation health across a vast majority of Australia’s wheat belt as of August 12th is rated much worse than a year ago, and the two-week forecast lacks meaningful rain in all but pockets of South Australia and Victoria. Additional crop stress lies in the offing, particularly in NSW & Queensland.
However, further reductions in Aussie wheat yield will hinge upon any forthcoming weather pattern change, and ARC will take a measured approach into Sep/Oct. We’ve mentioned this week that key areas of the equatorial Pacific are cooling, ENSO forecasts through fall indicate neutral conditions, though there are hints that a weak La Nina may be established by Oct/Nov. As such, climate guidance in Australia is trending wetter (La Nina is generally conducive to wet weather thee), and the CFS models’ latest Sep precip outlook is attached. The EU model is in broad agreement, and these forecasts have changed rather abruptly.
Still, some measure have damage has been done, particularly compared to last year’s very wet/cool growing season, and so the top end of yield potential in NSW, Queensland and even Western Australia has been capped. Like many other major exporting countries, lofty carryin stocks will buffer against yield loss, and so Australia is expected to hold an average exportable surplus. To maintain ending stocks of 5 MMTs, ARC pegs Aussie wheat exports at 18 MMTs, vs. the USDA’s 19 and compared to near record shipments of 24 MMTs in 2016/17.
So far, the Australian cash market is very wary of any potential weather pattern shift, and wheat there is easily the most expensive of the major exporting countries. Without a further decline prices, world market share may be given to other N Hemisphere exports in late 2017/early 2018.