abare.gov.au - Australian commodities – December quarter . volume 15 . number 4 2008

Wheat

Leanne Lawrance

Harvesting of the 2008-09 northern hemisphere wheat crops has been completed, while in the southern hemisphere, harvesting is approaching completion. World wheat production is estimated to increase by around 70 million tonnes in 2008-09 compared with the previous season. When combined with opening season stocks, supplies are forecast to be 9 per cent higher in 2008-09 than in 2007-08. This increase in supplies has resulted in a decline in the world wheat indicator price (US hard red winter, fob Gulf ports) in recent months. Prices peaked in March 2008 at US$454 a tonne and fell to an average of US$244 a tonne in November 2008.

Reflecting the above developments, the world wheat indicator price (US hard red winter, fob Gulf ports) is forecast to average US$260 a tonne in 2008-09, around US$100 below the average achieved in the previous year.

Increased domestic wheat supplies are forecast to result in a decline in the estimated average pool return for Australian wheat. However, the recent significant depreciation of the Australian dollar is helping to support the export price for Australian wheat. The estimated average pool return for Australian premium white wheat across major companies is forecast to be A$317 a tonne in 2008-09, a 25 per cent decline on the estimated pool return for 2007-08.

Record wheat production in 2008-09

World wheat production in 2008-09 is forecast to be a record 683 million tonnes, a 12 per cent increase on the previous year’s production. In the major producing and exporting countries, with the exception of Argentina, production is estimated to be markedly higher than in the previous year.

Production in the European Union – the world’s largest producer and one of the major exporters – is estimated to have increased by 30 million tonnes in 2008-09. Despite this estimated increase in wheat production, the quality of the harvest on average appears to be poorer than in the 2007-08 season.

In the United States, wheat production is estimated to be 68 million tonnes in 2008-09, compared with 56 million tonnes in the previous year. The quality of this season’s hard red winter wheat is reported to be generally better than that of last season.

In the Russian Federation, area, yield and production of the 2008-09 wheat crop are estimated to have all reached record highs. Production is estimated to have been around 62 million tonnes compared with 49 million tonnes in 2007-08. The prospect of higher returns to growers encouraged a larger planted area to wheat, estimated at 26.6 million hectares, a 12 per cent increase on 2007-08.

In contrast, wheat production in Argentina is estimated to decline by 33 per cent in 2008-09. Seasonal conditions in Argentina were less than favourable and yields are estimated to be 2.39 tonnes a hectare in 2008-09. This is below the five year average of 2.62 tonnes a hectare and well below the record 3.02 tonnes a hectare achieved in the 2007-08 season.

World consumption at record high in 2008-09

Global wheat consumption in 2008-09 is forecast to be a record 651 million tonnes, 27 million tonnes above the previous record in 2005-06 and 37 million tonnes more than last season. The use of wheat as a livestock feed is driving the increase, with consumption forecast to be 32 million tonnes higher in 2008-09 than in 2007-08. The use of wheat for human consumption is forecast to increase by 1 per cent to 452 million tonnes in 2008-09, around 70 per cent of total wheat consumption.

The two largest consumers of wheat for livestock feed are the European Union and the Russian Federation, which together account for close to 70 per cent of total feed wheat consumption. In 2008-09, the use of wheat for livestock feed is forecast to be 59 million tonnes in the European Union and 18 million tonnes in the Russian Federation, a rise of 23 per cent and 41 per cent, respectively on the previous year.

An increased supply of feed quality wheat has resulted in a decline in the price of feed wheat in the European Union. The UK feed wheat price averaged US$147 a tonne in November 2008 compared with US$322 a tonne in the same month a year earlier. The lower price is expected to result in increased demand for feed wheat in the livestock sector in substitution for other feed grains such as corn and sorghum. The use of wheat for livestock feed in the European Union is forecast to increase by 11 million tonnes in 2008-09 compared with 2007-08.

Wheat outlook

2006-07

2007-08

2008-09

% change

World

Production

598

610

683

12.0

– China

109

110

113

2.7

– EU27

125

120

150

25.0

– India

2.6

– Russian Fed.

26.5

– United States

21.4

Consumption

611

614

651

6.0

– human

442

446

452

1.3

– feed

119

36.8

Closing stocks

122

118

150

27.1

Trade

110

117

6.4

Exports

– Argentina

– 20.0

– Australia

57.1

– Canada

12.5

– EU27

54.5

– United States

– 23.5

Price

US$/t

212

362

260

– 28.2

Australia

Area

’000 ha

11 798

12 344

13 552

9.8

Production

10 822

13 039

19 969

53.1

Exports

11 196

7 421

10 640

43.4

– value

A$m

2 765

2 997

4 684

56.3

APW 10 net pool return a

A$/t

240

420

317

– 24.5

a From 2008-09, the pool return is an estimated average across the major companies offering grain pods.
f ABARE forecast.

World trade on the rise in 2008-09

World wheat trade is forecast to be 117 million tonnes in 2008-09, a 7 million tonne increase on the volume traded in 2007-08.

Import demand from Iran is forecast to increase by around 4 million tonnes in 2008-09, as drought affected domestic supplies will be unable to meet domestic demand.

Total shipments by the five major exporters are forecast to increase to 81 million tonnes in 2008-09 compared with 79 million tonnes in 2007-08. Increased exports from Australia, Canada and the European Union are forecast to outweigh reduced exports from Argentina and the United States.

In 2007-08, US wheat exports increased to 34 million tonnes, a rise of 36 per cent on the previous year. As global wheat supplies are forecast to increase in 2008-09, exports from the United States are expected to decline because of increased competition on world markets. Exports from Argentina are forecast to be lower as a result of lower domestic production.

Wheat stocks to rise in 2008-09

At the end of the 2008-09 season, wheat stocks are forecast to increase by 27 per cent, to be around 150 million tonnes, the highest in the past five seasons.

Stocks of high-quality milling wheat held by the major exporters are forecast to be 44 million tonnes, a 15 million tonne increase on the previous season. Despite this forecast increase, milling wheat stocks in the major exporting countries will remain historically low.

Australian production increasing

Harvest of the 2008-09 Australian wheat crop is well underway and production is estimated to be around 20 million tonnes. A lack of spring rainfall across Victoria, South Australia and southern New South Wales resulted in a lower than previously expected wheat crop in these regions. Although there are prospects of a good harvest in northern New South Wales and Queensland, rainfall in mid to late November has interrupted the harvest and is expected to result in some quality downgrading of wheat crops in these regions.

In Western Australia, the largest wheat producing state, production is forecast to be around 8 million tonnes in 2008-09, an increase of 1.8 million tonnes on the previous season. Rainfall in mid to late November has delayed harvest. However, overall quality is expected to remain reasonable.

Despite possible quality concerns with the wheat crop in northern New South Wales and the poor yield prospects in the south of the state, total production in New South Wales is expected to be significantly higher than the 2007-08 harvest. Wheat production in 2008-09 in New South Wales is estimated at 6.5 million tonnes compared with a harvest of 1.8 million tonnes in the previous year.

Favourable seasonal conditions were experienced across most of Queensland’s grain growing regions. Although late rainfall adversely affected the quality of some of the harvest, total production is forecast to be 1.7 million tonnes in 2008-09, the largest since 1999-2000 season.

Production in Victoria is estimated at 1.5 million tonnes in 2008-09, a 20 per cent decline on last season’s harvest. In South Australia, production is estimated to remain similar to last season at 2.3 million tonnes. This is below the five year average of around 2.7 million tonnes.

Australian exports to rise

Reflecting the improved harvest, Australian wheat exports (October – September marketing year) are forecast to increase to 12.3 million tonnes in 2008-09. The value of wheat exports in the financial year 2008-09 (July-June) is forecast to increase by 56 per cent to $4.7 billion.

Domestic prices forecast to decline

Increased domestic wheat supplies are forecast to result in a decline in the estimated pool return for Australian wheat. However, the depreciation of the Australian dollar is helping to support the export price for Australian wheat. The pool return for Australian premium white wheat is forecast to be A$317 a tonne in 2008-09, a 25 per cent decline on the estimated pool return for 2007-08.

The domestic cash price for wheat used for livestock feed has fallen in recent months as the outcomes of the 2008-09 winter grain harvest become clearer. In November 2008, the feed wheat price averaged A$290 a tonne, compared with A$342 a month earlier and A$430 a tonne in November 2007.