Rural Commodities Wrap – July 2014

The 2014-15 Australian wheat season is off to a good start in most growing areas following autumn rain, and domestic prices are at a premium to international levels due to concerns about the impact of a dry spring.

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Wheat season off to a strong start

The 2014-15 Australian wheat season is off to a good start in most growing areas following autumn rain, and domestic prices are at a premium to international levels due to concerns about the impact of a dry spring.

Coming off the back of a bumper 2013-14 crop, the latest National Australia Bank (NAB) Agribusiness Rural Commodities Wrap is forecasting Australian wheat production will fall 3.8 per cent on last year, while prices will ease 1.8 per cent in local terms in 2014-15 as a falling Australian dollar mitigates steeper international falls.

NAB has also maintained its forecast that the AUD will fall to 85 US cents by the December quarter 2014, while official interest rates will remain on hold until late next year.
General Manager of NAB Agribusiness, Khan Horne says his team of bankers are reporting the optimism of customers across Western Australia, South Australia and the Riverina in New South Wales.

“After a long and hot summer, decent autumn rainfall across many wheat growing regions has improved growers’ yield expectations,” he said.

“The outlook in northern New South Wales and Queensland is slightly less optimistic, with low subsoil moisture and heavy frosts in the Darling Downs placing pressure on crops and decent rain is needed in July and August.

“Victorian growers are also hoping for decent spring rains to offset lower subsoil moisture levels to achieve average yields,” he said.

NAB’s view on wheat production differs from ABARES, which is forecasting a decline of 9 per cent in 2014-15.

NAB believes wheat yields in Western Australia, South Australia and Victoria will be better than the June ABARES estimate, while ABARES’ projection of higher wheat production in Queensland may be optimistic.

World wheat production this year is forecast to be the second highest on record at 705.2 million tonnes.

“The US Department of Agriculture has sharply increased its forecast for the spring wheat crop, and production is looking good in the Ukraine and Europe as well.

“With this expectation, international prices have been weakening since the beginning of May. Wheat futures on the Chicago Board of Trade fell below 600 USc/bushel in early June and are now below 538USc/bushel – almost 20 per cent below the July 2013 average.

“Concerns earlier in the year that unrest in the Ukraine could hamper wheat production have not yet materialised but the market is closely watching the situation in the Ukraine and Russia,” Mr Horne said.

In June the NAB Rural Commodities Index declined 2.5 per cent in AUD terms (2.6 percent in USD terms) as dairy, wheat, wool and sugar prices edged lower.

Beef prices fell just 0.7 per cent (AUD), while lamb erased the falls in May by rebounding 2.9 per cent (AUD). Global dairy prices continued to fall for a fourth straight month, down 3.9 per cent (USD) in June. Wheat prices fell 8.9 per cent (USD) on the back of plentiful global supply, while barley posted similar falls.

For further analysis download the full report.