Wheat: September quarter 2020
World wheat prices to remain low, Australian prices to converge
The world wheat price is forecast to remain low in 2020–21, at an average of US$222 per tonne. This is a marginal increase from 2019–20. A forecast fall in production in some major exporting countries will be partially offset by weaker world demand for discretionary foods due to restrictions introduced to slow the spread of COVID-19.
Milling wheat has few substitutes and relatively inelastic demand as a staple food. This means that the underlying demand for wheat is unlikely to be significantly affected by the COVID-19 pandemic. Weaker global economic growth as a result of COVID-19 is likely to reduce demand for higher-value wheat flour products (cakes, biscuits and pastries) and higher-value meat and dairy products. The fall in demand for grain-fed meat and dairy products and an abundance of feed grain substitutes will result in lower feed demand for wheat.
The duration of these downside factors remains uncertain as countries continue to deal with further COVID-19 outbreaks. The spread of the virus in some countries seems to have slowed, but the risk of subsequent waves remains. The longer it takes for economies to recover, the greater the effect on demand and the downside risk to prices.
World production to increase marginally
Mostly favourable seasonal conditions in major wheat-producing countries are forecast to result in record high world wheat production of around 764 million tonnes, a marginal increase from 2019–20. Increased production is forecast in Australia, Canada, China, India, Kazakhstan and the Russian Federation. Production in the European Union, United States and Ukraine is forecast to fall in 2020–21 due to less favourable seasonal conditions – particularly in the European Union where production is forecast to fall by 19%.
Australian wheat production to rebound in 2020–21
Australian wheat production is forecast to increase by 91% in 2020–21 to 29 million tonnes. If realised, this will be the biggest wheat crop Australia has produced since the record high of 2016–17. An excellent start to the winter cropping season in New South Wales, Queensland, Victoria and parts of South Australia resulted in an increase in the area planted to winter crops. Despite July rainfall being below average across Victoria, South Australia and Western Australia, timely August rainfall has meant that crops have excellent potential heading into spring. Conditions in New South Wales have been ideal, but conditions in Queensland have been less favourable. Seasonal conditions to date, and a positive outlook for spring rainfall, are forecast to result in better yields in 2020–21. In New South Wales, yields are expected to be significantly above average.
Australian exports to recover from drought-affected lows
Australian wheat exports are forecast to increase 84% to around 18.5 million tonnes in 2020–21. Significantly higher production and lower domestic use will result in an increase in export supply and lower prices for Australian wheat.
World food and industrial wheat use are expected to continue to increase, in line with population growth. This is likely to support demand for Australian wheat in export markets. However, uncertainty about the adverse effects of COVID-19on global demand for high-value foods made from flour may constrain growth in the demand for higher-value milling wheats. This uncertainty extends to some of Australia's major markets. For example, in South-East Asia wheat imports have more than doubled over the past 10 years. Before the pandemic, rapidly expanding populations and increased incomes in the region drove up demand for western-style bakery products, and an increase in intensive livestock production increased demand for feed wheat. However, with economic growth forecast to slow in 2020, growth in imports is likely to slow or may even fall, particularly for imports of higher-quality milling wheat and feed wheat.
Australian stocks to rebuild from historic lows
If forecast 2020–21 wheat production and exports are realised, ending stocks will rebuild to pre-drought levels of around 4.4 million tonnes. Australian wheat supply has been adversely affected by 3 consecutive years of drought-related below average production. Poor pasture growth and the continued expansion of intensive livestock industries during the drought resulted in a significant increase in domestic feed demand. A combination of increased demand, low production and the high costs associated with importing grain led to a significant drawdown in domestic wheat stocks. Stocks are forecast to continue falling to 1.7 million tonnes through to the end of the 2019–20 marketing year (end of September). The 2019–20 stocks-to-use ratio is forecast to fall to 21%, significantly lower than the 10-year average of 89%. These factors also pushed domestic prices well above world prices. Domestic prices have eased considerably as confidence in the size of the 2020–21 winter crop has grown.
Opportunities and challenges
Increased chance of a wet spring
The latest 3-month rainfall outlook (September to November), issued by the Bureau of Meteorology on 3 September 2020, suggests that spring is likely to be wetter than average across Queensland, New South Wales, Victoria and South Australia, with a greater than 70% chance of exceeding the median in most areas. This is likely to be beneficial for average yields, but an exceptionally wet spring may delay harvesting and result in a greater proportion of low-protein wheat and an increased likelihood of damaged and downgraded grain.
Impact of border closures on harvest
Current restrictions on state border crossings are not expected to adversely affect grain harvesting. Agricultural workers are currently deemed essential and their movement is being facilitated by state and territory governments via a permit system. However, the details of these arrangements may change as allowances relating to state border closures evolve.
Indonesia–Australia Comprehensive Economic Partnership Agreement
The Indonesia–Australia Comprehensive Economic Partnership Agreement (IA–CEPA) came into effect on 5 July 2020. In the first year of the agreement, Indonesia will issue automatic import permits granting duty-free access for 500,000 tonnes of Australian feed grain, including wheat. The tariff quota volume will increase by 5% annually. This agreement will boost Australia's competitiveness in what has traditionally been one of our biggest wheat export markets.
|Agricultural commodities – September 2020 PDF||63||6.2 MB|
|Agricultural commodities: September quarter 2020 - Commodities - data tables XLS||12||176 KB|
|Agricultural commodities: September quarter 2020 - Statistics - data tables XLS||32||582 KB|
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