COMMODITIES 2025: Australia to see jump in wheat output but quality concerns remain

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Australia is poised see a year-over-year jump in wheat production in the 2024-25 marketing year (October-September) following excellent weather on the East Coast and improved showers across Western Australia.

Market participants estimate a 4 million mt increase year over year for the wheat crop to top 30 million mt. Australian Bureau of Agricultural and Resource Economics has pegged Australia's wheat production in MY 2024-25 at 31.9 million mt, up 23% year over year.

However, concerns remain over quality downgrades as heavy rainfall in late November delayed harvest and impacted parameters such as test weight.

"The situation isn't as bad in Western Australia, but the East Coast got pretty big rain events [in late November]," a trade source based in Australia said.

"At the time of the rain interruptions, we estimated there was still 5-6 million mt of grain unharvested across southern New South Wales, Victoria and southeast South Australia," said Rod Baker, agricultural analyst at Australian Crop Forecasters.

Initial trade estimates indicated downgrades of 3-4 million mt wheat, primarily in Victoria and southern New South Wales. IKON Commodities expects a smaller downgrade of 2-3 million mt.

However, a resumption of harvest in mid-December suggested that the impact could be lower than anticipated, trade sources reported.

In Western Australia, farmers are grappling with lower-than-expected protein in the state's crop. "Pricing for better protein and quality grades seem to hold better or remain firm [ in Western Australia]," a Perth-based trade source said.

Expectations of significant improvement in protein levels as the harvest moves down south have not materialized, and average crop protein levels are generally expected to remain lower year over year, sources added.

Australia's crop profile will greatly improve its relevance in feed wheat markets in Asia, though fierce competition is still anticipated from feed corn. Its competitiveness in the milling wheat market, however, will likely be restricted.

"With a slow start to the export marketing year along with subdued international demand our export estimate currently sits at 21.5 million mt," Baker said. However, Baker noted that Australia could end up shipping out 23.0-23.5 million mt wheat.

According to trade participants, Australia is expected to export between 22-23 million mt. The ABARES has estimated Australia to export 20.9 million mt in MY 2024-25, as against 22.5 million mt in the previous year.

Asian demand picks up amid low prices, China's return

Asian demand remained largely subdued during most of 2024, led by China's absence from the global markets. China returned to the market in October 2024, booking Australian and Canadian wheat for the first quarter in 2025.

China's return along with easing global wheat prices has encouraged regional buyers in Asia to improve their purchases and temporarily abandon their largely hand-to-mouth procurement strategy throughout much of 2024.

On top of competitive feed corn prices pressuring feed wheat demand in most Asian destinations, mounting expectations of a larger-than-anticipated feed wheat production from Australia has also kept some buyers on the sidelines in hopes of cheaper prices.

"Our projections continue to point to a slowdown in [feed] wheat imports while we see corn imports increasing. We expect corn to be more included into feed ratios for animal feeding in the main Asian switching countries," noted Pierre Cera-huelva, Associate Director of Research and Analysis at S&P Global Commodity Insights.

While trade participants are keeping a close watch on potential Sino-US trade conflicts ahead of Donald Trump's impending presidency, most believe wheat markets are unlikely to see direct impacts.

"China has been reducing its dependency on US wheat and should be able to comfortably do so in 2025, thanks to high production from Canada and Australia," said a grains trader based in Singapore.

India expected to reap bigger crop

India has been absent from the global wheat market, due to a ban on exports and high import tariffs but rising domestic prices have kept the market on its feet through the year. Currently, wheat prices across key markets of India are around Rupee 28,000/mt ($330.07/mt) to Rupee 28,500/mt, up nearly 12% since the beginning of 2024.

Traders believe prices will drop in coming months on expectations of higher output. Trade participants expect higher yield due to adequate soil moisture in key wheat growing states following robust rainfall during the monsoon season.

Traders also expect a higher wheat acreage on expectations of better remuneration. So far, farmers have planted wheat across 23.9 million hectares, up 2.3% year over year, according to the agriculture ministry.

In MY 2023-24 (April-March), India harvested 113.2 million mt wheat, 2.4% higher year over year, the ministry said.

"Wheat output is likely to increase due to the anticipated rise in area and better yields in northern states," said Dipanshi Agarwal, agricultural economist at S&P Global Commodity Insights.

Some in the trade circles have been seeking a reduction in import duties for wheat from the current 40% to ease the supply tightness. However, the government has ruled out allowing cheaper imports. Instead, the government has initiated measures, including selling wheat from government stocks at the open market sales scheme and imposing several stock holding norms.

Despite the expected rise in production in MY 2024-25, India is likely to remain absent from the global exports market as the government looks to contain rising domestic prices.