Australia in wheat bonanza CHRIS ZAPPONE AND ELI GREENBLAT August 7, 2010
AUSTRALIA'S wheatgrowers face a potential revenue windfall as the price of the grain trades at a two-year high after Russia this week banned exports because of a devastating drought.
But Australia's biggest wheat and grain handlers have moved quickly to allay fears that the withdrawal from the market of wheat from Russia, and possibly other Black Sea regions, will trigger a rise in food prices at the checkout. The country's yearly consumption of 6 million tonnes of wheat is easily covered by annual production and stockpiles.
Wheat prices have been on the march for months, but the US wheat contract for December this week jumped 6.5 per cent to a two-year high of $US310a tonne after Russia reversed an earlier assurance that it would export wheat this year as usual.
The ban leaves countries such as Australia and the US to meet global demand, and some analysts are tipping prices will climb a further 15 per cent or more by the end of the year.
National Australia Bank commodities economist Michael Creed said this week's jump in wheat prices was an overreaction, with speculators betting on a global shortfall. Nonetheless, the fundamentals for Australia's east-coast farmers remained strong.
''The outlook for wheat farmers has improved significantly over the past couple of months,'' Mr Creed said.
''While prices in US-dollar terms have gone up significantly, the substantial increase in the Australian dollar will wipe away some of that benefit.''
Since the beginning of June, the Australian dollar has risen almost 12 per cent to US91.67 on stronger prospects for the resource economy.
Tom Puddy, wheat marketing manager for Australia's biggest grains handler, CBH, said Russian wheat was mostly a low-protein variety, not especially in demand in the West.
''We were aware that there was possibly around 3 million tonnes of forward contracts to come out of that Black Sea region to supply demand, mainly to the Middle East, like Iraq, Yemen and North Africa,'' he said.
''Now the trade flows will change and will end up swinging back to traditional supply bases like Australia, US and Canada.
''It's a good thing for us. We have got stocks, we can supply the shortfall in the market.''
The world produces roughly 650 million tonnes of wheat a year, and some observers believe the short-term withdrawal of Russia will slash available global supply by only 15 to 20 million tonnes.
''In Australia, we have fairly ample supplies of feed grain at this time,'' said Sydney-based Rabobank senior commodities analyst Wayne Gordon.
But the 76 per cent rise in price over the past two months could ignite demand for Australia's exports in a season expected to produce a bumper crop for east coast farmers, he said. GrainCorp corporate affairs manager David Ginns said: ''It's a potential positive for exports out of Australia because the competition for that particular grade of wheat into South-East Asian markets, Middle East, will actually be a bit lower.''
Shares in GrainCorp, now in merger talks with grains exporter AWB, rose 20, or 3.2 per cent, to $6.37. Among other wheat-related stocks, AWB rose 4 to $1.10 and Elders lifted 3.5 to 50.5.
Analysts agreed that local consumers would not face higher prices for wheat products because the cost of wheat was a small input in the total cost of bread and biscuits.
But if wheat prices stayed high, demand for higher-quality east-coast wheat could drive up the cost of milk and cheese, which depend on grain-fed cattle.
''We would have been looking to WA to fill the gap the Russia government has now left in the market,'' Mr Gordon said, estimating a 10-million-tonne shortfall in the market.
''Grain stocks globally are still ample,'' he said, but Russia, Canada and some European countries that export the crop now faced uncertain outputs because of weather.
Western Australia produces 42 per cent of Australia's wheat, mainly for export. But recently analysts have lowered their production estimates from 8 million tonnes to about 7 million tonnes due to poor weather.
GNC Price at posting:
$6.31 Sentiment: None Disclosure: Held
