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Australian wheat under pressure from Ukraine, South America competition

Highlights

Feed wheat demand thin, cheaper alternatives available

Australia on track for third bumper crop

Australian ports logistics a lasting challenge

  • Author
  • Elizabeth Thang
  • Editor
  • Norazlina Jumaat
  • Commodity
  • Agriculture Shipping

Platts Australia Premium White and Australia Standard White wheat shed 5.2% and 6.2% on the month to be assessed at $360/mt and $347/mt FOB Western Australia, respectively, Aug. 19, data by S&P Global Commodity Insights showed, as more Ukraine wheat offers were observed in Asian markets, while demand for spot cargoes was poor, market sources said.

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APW and ASW have been on a downtrend since hitting record highs of $473/mt and $441/mt on May 18.

Indonesia and Philippines, large buyers of Australian wheat, have been reluctant to purchase due to bearish sentiment and mostly covered demand.

The Philippines' San Miguel Corporation was seeking an array of feed grains including corn, feed wheat and barley on Aug. 18, although sellers' details were unavailable, it did not buy wheat, a market source said.

Instead, San Miguel was heard to have bought South American origin corn at under $340/mt CFR and Australia barley at under $330/mt CFR.

The price of Australian wheat was higher at low-$370s/mt CFR based on purchases by Chinese companies for December shipment, a source said.

Bumper crop, increased competition keep prices in check

Good rains are lifting Australian farmers' hopes of another bumper crop for the 2022-2023 season (October-September), with some adjusting their forecasts above that of the US Department of Agriculture's World Agricultural Supply and Demand Estimates report for August released Aug. 12.

The latest WASDE report raised its 2022-23 season estimates for Australian wheat crop from 30 million mt to 33 million mt but industry players forecast between 31 million-37 million mt, with one expecting as high as 38 million mt.

The new season crop from Western Australia alone is forecast at 10.8 million-13 million mt, sources said. The 2021-2022 season produced 10.3 million mt of wheat, according to the Grain Industry Association of Western Australia's August report.

South American spot offers for December shipments, which compete with the Australian new crop, are also likely to put a ceiling on Australian wheat prices, another market source said.

According to a source, 60,000 mt of Brazilian wheat with 12% protein for full December shipment was offered at $328/mt FOB on Aug. 20, while the freight rates for a Panamax shipment from Brazil to South Korea was $49/mt and a Supramax $51/mt.

The cost to move the same cargo to Southeast Asia would be similar, which suggests that the landed cost of such a shipment would be in the high-$370s/mt CFR Southeast Asia compared with APW at $380s/mt CFR for the same shipment, the source added.

Logistics still a challenge

The previous season's large crop had resulted in robust exports which have strained port logistics.

The lack of skilled labor throughout Australia's supply chain had abrupted shipments, leading to huge demurrage costs for traders, market sources said.

The shortage of truck drivers may thwart Australia's export ambitions despite the bumper crop and could add to customers' costs.