Australian wheat prices are expected to continue their bullish trend for the next 2-3 months on weaker competition from other major producers and rising demand from Asia, the world's largest wheat-buying region, sources said.
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Russia and North America, key competitors for Australian wheat, are facing unfavorable weather prospects that are weighing on their spring wheat crops, traders said.
Meanwhile, Australian wheat production has jumped back from a precarious situation seen in the last three years after prolonged drought disrupted wheat crops in the country. It has managed to grab back its lost market share in Asian market this year.
"The majority of the increased export shipments so far in marketing year 2020-21 have been to Indonesia and Vietnam. In comparison to the same time the previous year, exports to Indonesia and Vietnam have increased by almost 400% and 300%, respectively, and by volume up 3.8 million mt," US Department of Agriculture said in a report.
In the current wheat marketing year of 2020-21 (October-September), Australia has sold bulk volumes to South Korea, Indonesia, Thailand, and other southeast Asian countries, according to sources.
"We are seeing an increase in some Asian nations in the past few weeks – Japan and South Korea have stepped up wheat buying, but these are both quality conscious markets that value high quality Australian wheat which can't be substituted by lower quality Russian wheat," said James Maxwell, manager at Australian Crop Forecasters.
One specific market to return to Australia was that of the Chinese market. China has been making bulk purchases of Australian wheat in recent weeks as North American spring wheat becomes increasingly expensive.
The North American spring wheat is also losing its market share as the region is reeling under dry and hot weather that is weighing on the prospects of the crop, analysts said.
Earlier last month, China-based buyers covered 200,000-250,000 mt of hard wheat and prime hard for September-October shipment from Australia's east coast, traders said.
Flour millers in Japan and South Korea are also inquiring for wheat from Australia, they added.
"China has taken a few extra shipments, but their buying has been sporadic and they tend to buy for a short period then drop out of the Australian market," Maxwell added.
Meanwhile, Australia has also gained export market in some African nations, like Kenya, South Africa, and some Middle East countries including Yemen, Oman, and Egypt.
The primary reason for Australian exports to gather pace is the likely decrease in the output of wheat in Russia and US, led by hot and dry weather conditions, traders said.
The US Department of Agriculture has lowered wheat production estimate for Russia in MY2021-22 (July-June) by 1 million mt to 85 million mt. It has also reduced its projection for US wheat output in MY2021-22 (June-May) to 47.5 million mt against 51.7 million mt seen earlier.
S&P Global Platts analytics has pegged Russia's wheat output in MY2021-22 at 83.8 million mt. It has pegged the wheat output in Ukraine at 28.9 million mt in MY2021-22.
Local agencies have put in bigger cuts in the expected Russian harvest. Russian agricultural consultancy SovEcon has cut its forecast for the country's wheat crop in the MY2021-22 by 2.3 million mt to 82.3 million mt, while another consultancy IKAR reduced its projection to 81.5 million mt, from 83.5 million mt.
Amid a likely decline in the output of Russian wheat, Australian traders have been able to capture the vacuum created in the global selling markets, sources said.
Australian wheat prices
Australia's increased potential for exports are also seen supporting export prices of wheat, traders said.
Over the past fortnight, FOB prices of APW wheat have risen to $284/mt on July 26 from $279/mt on July 12. On July 22, prices had risen to the highest level in a month to $288.5/mt.
The prices of Australian wheat are likely to see some rise in the near term, by the time harvest arrives between October and December, analysts said.
Quality concerns for Russian wheat are also seen pushing Australian wheat prices much higher than that of Russian and Ukrainian wheat. On July 23, FOB price of 12.5% protein wheat was at $246.25/mt while FOB price of 11.5% protein wheat was at $234.75/mt.
Australian wheat prices are likely to see increases over the next few months, until most of the global crop is harvested, analysts added.
"Once majority of crops are harvested, we expect global pricing to settle down as supply is mostly known in the next month or two which will ease prices. Once that happens, Australian pricing will take direction from local conditions," Maxwell added.