abare.gov.au - Australian commodities – September quarter . volume 15 . number 3 2008

Wheat

Leanne Lawrance

Harvest of 2008-09 northern hemisphere wheat crops is well underway and production in many countries is forecast to be higher than the previous year. The favourable outlook for wheat production has resulted in the world wheat indicator price (US hard red winter, fob Gulf) falling from a peak of US$454 a tonne in March 2008 to an average of US$331 a tonne in August 2008.

World wheat supplies are forecast to rise by more than the increase in consumption, resulting in higher closing stocks and a lower average world wheat indicator price. In 2008-09 the world wheat indicator price is forecast to average US$325 a tonne, US$37 a tonne lower than the previous year. Despite this forecast decline, world wheat prices are expected to remain relatively high in historic terms.

The pool return for Australian premium white wheat (APW 10) is forecast to be $375 a tonne in 2008-09, $43 a tonne lower than in 2007-08. Lower global wheat prices and a forecast increase in domestic production are the main factors leading to the forecast fall in the pool return.

World wheat production increases

arvest of 2008-09 wheat crops is proceeding in northern hemisphere countries and seasonal conditions have generally been favourable. Global wheat production is forecast to be more than 60 million tonnes higher in 2008-09 than in the previous year. When combined with opening season stocks, global wheat supplies are forecast to be 8 per cent higher in 2008-09 compared with global supplies in 2007-08.

In the major producing regions of China, the European Union, India, the Russian Federation and the United States, production is forecast to increase in 2008-09. Harvest of winter wheat crops in the United States has been completed and the United States Department of Agriculture estimates that 81 per cent of the 2008-09 spring wheat crop had been harvested by early September. Total 2008-09 wheat production in the United States is forecast to increase to 67 million tonnes, 11 million tonnes more than the previous year.

Harvest in the European Union is approaching completion and production is forecast to be 146 million tonnes in 2008-09, a 26 million tonne increase on the previous year. High wheat prices and policy changes to the set-aside rate (land left fallow) encouraged a larger area to be planted to wheat in 2008-09. Favourable seasonal conditions throughout the growing period resulted in the wheat crop being one of the largest on record and yields being well above the previous year.

China’s wheat production in 2008-09 is forecast to be 3 per cent higher than the previous year. Harvest of winter crops is complete and yields are estimated to have also been above those achieved in the 2007-08 season.

Wheat production in the Russian Federation is forecast to increase by 12 per cent in 2008-09, to 55 million tonnes. Seasonal conditions have been favourable across the Russian Federation and production is forecast to be the largest since the late 1980s.

In contrast, the area sown to wheat in Argentina is estimated to have been lower than the previous year, as high input costs and poor seasonal conditions, at the time of sowing, deterred plantings. Total wheat production in Argentina is forecast to be 2.5 million tonnes lower than in the previous year.

Feed use driving increased consumption

Global wheat consumption is forecast to be 31 million tonnes higher in 2008-09 compared with 2007-08. While human consumption accounts for the majority of wheat used (accounting for more than 70 per cent of total consumption), the forecast increase in consumption is largely the result of increased livestock feeding. The use of wheat for human consumption is forecast to increase by 5 million tonnes and the use of wheat for livestock feed is forecast to rise by 24 million tonnes.

The European Union and the Russian Federation are the largest users of wheat in animal feed. Together they are expected to account for around 70 per cent of total global wheat consumed as feed in 2008-09. Consumption of wheat by livestock in the European Union is forecast to increase by 20 per cent compared with the previous year. Increased feeding of wheat to livestock has been facilitated by greater EU wheat supplies, which is also expected to lead to a reduction in imports of other feed grains. In the Russian Federation the use of wheat for livestock feed is forecast to increase by 11 per cent to 14.3 million tonnes in 2008-09.

World trade increasing

World wheat trade is forecast to be 115 million tonnes in 2008-09, a 6 per cent increase on the volume traded in 2007-08. Higher imports by Iran, Indonesia, Pakistan and Algeria are forecast to outweigh lower imports by India, Morocco and the European Union.

Import demand in India is forecast to fall as production in 2008-09 is expected to be a record 78.4 million tonnes. The 2008-09 record production follows production of more than 75 million tonnes in the previous year. Wheat imports by India are forecast to be only 100 000 tonnes in 2008-09 which is down from 2 million tonnes in 2007-08. Domestic consumption needs are expected to be largely met by the increase in local production.

A major increase in exports is expected from the Ukraine, where shipments in 2008-09 are forecast to be six times greater than in the previous year. Increased wheat supplies in the Ukraine will facilitate a forecast 7.5 million tonnes of wheat exports in 2008-09.
Exports from Australia and the European Union are forecast to rise as higher production increases the availability of exportable surpluses.

Stocks to increase

World wheat stocks at the end of 2008-09 are forecast to be nearly
30 million tonnes higher than at the end of the 2007-08 season. Production has improved in 2008-09 in many wheat producing countries and has outpaced the forecast increase in consumption. This is the highest level of stocks since 2002-03.

In the major exporting areas (Argentina, Australia, Canada, the European Union and the United States) stocks of high-quality milling wheat are forecast to increase by 13 million tonnes to 41 million tonnes by the end of 2008-09. Despite this forecast increase, milling wheat stocks in these areas remain relatively low in historic terms.

China is one of the world’s largest holders of wheat stocks, accounting for around 30 per cent of global stocks. In 2008-09, end of season wheat stocks in China are forecast to increase for the third consecutive year to more than 40 million tonnes.

Wheat outlook

2006-07

2007-08

2008-09

% change

World

Production

598

609

672

10.3

– China

109

110

113

2.7

– EU27

125

120

146

21.7

– India

2.6

– Russian Fed.

12.2

– United States

19.6

Consumption

612

643

5.1

– human

442

446

451

1.1

– feed

111

27.6

Closing stocks

125

122

151

23.8

Trade

110

109

115

5.5

Exports

– Argentina

– 10.0

– Australia

100.0

– Canada

– 5.9

– EU27

25.0

– United States

– 25.7

Price

US$/t

212

362

325

– 10.2

Australia

Area

’000 ha

11 798

12 345

13 552

9.8

Production

10 822

13 039

22 460

72.3

Exports

11 196

7 422

13 610

83.4

– value

A$m

2 765

2 997

5 261

75.5

APW 10 net pool return

A$/t

240

418

375

– 10.3

f ABARE forecast. s ABARE estimate.

Spring critical for Australian production

Average to above average rainfall was received across most of the Australian grains belt in July 2008. Total rainfall in August 2008 was well below average across the Western Australian grains belt, while in the remaining states total August rainfall was average or below average. Despite the below average August rainfall, crops are still in a reasonable position leading into the critical spring months. Australian wheat production is forecast to be around 22.5 million tonnes, a 9.5 million tonne increase on the drought affected harvest of 2007-08.
Wheat production in 2008-09 is forecast to increase in all states, as high wheat prices and the need to secure a recovery in income encouraged the planting of a large area. The area planted to wheat, following two years of drought, is estimated to have increased to 13.6 million hectares in 2008-09, a 10 per cent increase from the previous year.

Widespread rainfall in the first week of September arrived just in time for many moisture stressed crops in New South Wales. However, lack of subsoil moisture, particularly in the southern and central regions means further spring rainfall will be critical for crops to reach production forecasts. New South Wales wheat production is forecast to be 6.6 million tonnes in 2008-09, close to 5 million tonnes more than the previous year.

In Victoria and South Australia, wheat production is forecast to increase by 44 per cent and 46 per cent, respectively in 2008-09, compared with the previous year. Winter cropping conditions in Queensland have been favourable with average to above average winter rainfall. Wheat production in Queensland is also forecast to increase in 2008-09 to be 1.5 million tonnes.

Total winter rainfall across the Western Australian grains belt has been average or below average. However, crop prospects remain positive. Assuming average spring rainfall, production in Western Australia is forecast to be 8.3 million tonnes.

Domestic prices fall

The pool return for Australian premium white wheat (APW 10) is forecast to be $375 a tonne in 2008-09, $43 a tonne lower than in 2007-08. Lower global wheat prices and a forecast increase in domestic production are factors contributing to the forecast fall in price.

The expectation of increased domestic wheat production and lower world wheat prices has led to a decline in the domestic cash price of wheat. In August 2008, the cash price of wheat (delivered Sydney) used for livestock feed averaged $419 a tonne. This was the lowest price for feed wheat since September 2007, when the price averaged $409 a tonne. Even though the price declined, the August 2008 average is still $100 above the average price recorded in August 2007.

Australian exports to rise

Reflecting an expected better harvest, Australian wheat exports (October – September marketing year) are forecast to increase to around 15.7 million tonnes in 2008-09. The value of wheat exports in the financial year 2008-09 (July – June) is forecast to increase by 76 per cent to $5.3 billion.

By mid-September 2008, Wheat Exports Australia had accredited 13 companies to export wheat in bulk from Australia. As of 1 July 2008, exports of wheat in containers and bags are possible without any restrictions other than meeting Customs and Australian Quarantine Inspection Service requirements.