Australia is on track to produce its second-largest wheat crop in history with exports that are expected to match. USDA’s Foreign Agricultural Service’s post in Canberra recently forecast Australia’s wheat production at 31 million metric tons (MMT) for the 2020/21 marketing year, more than double last year’s drought-afflicted output of just over 15 MMT and 1 million higher than the USDA’s official forecast in the February WASDE. The FAS estimate is still lower than the most recent forecast from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) which just raised its wheat production estimate to 33.3 million metric tons, +120% higher than last year.
USDA’s Canberra post estimates Australian wheat exports at 21 MMT, which would be the third-highest the country has ever achieved and also about 1 million higher than USDA’s official estimate in February. That is also more than double 2019/20 exports which only came to 9.14 MMT, only slightly better than 2018/19’s exports of 9.01 MMT.
Australian wheat is being priced as far away as Africa and the Middle East, markets traditionally supplied by Russia and Europe. Australia doesn’t normally sell into them because of the higher freight costs but with Russia imposing taxes on exports, wheat from down under is looking more competitive. Most of the country’s exports are expected to go to nearby Asia. During 2016/17, a year of similar-sized exports, over 80% of Australia’s exports went to East, Southeast, and South Asian countries.
During the drought, the largest decline in exports was to Indonesia, which had a pre-drought peak of 5.1 MMT but dropped to 0.7 MMT in 2019/20. The U.S. likely picked up some of that slack with wheat exports to Indonesia rising +29% in 2018/19. There was also a significant fall in Australian exports to Vietnam during the drought years. Philippines, South Korea and Japan (East Asia), however, remained stable export destinations for Australian wheat compared with the three-year average prior to the drought.
The Southeast Asian market (Cambodia, Laos, Myanmar, Peninsular Malaysia, Thailand, and Vietnam) is witnessing some interesting dynamics right now with the region struggling to secure affordable feed as corn prices skyrocket. Vietnam and other regional feed buyers would typically turn to Myanmar for cheap corn but a military coup in the country has raised concerns about export delays. That’s making Australian wheat look more attractive as a possible substitute for at least a portion of corn demand in the region.
China is not typically a big market for Australian wheat, averaging just 6% of the country’s wheat exports since 2008, with 2018 the lowest year at 1%, and 2019 the highest at 15%. However, as a percentage of China’s wheat imports – which averaged less than 5 MMT per year since 2008 – Australian wheat accounted for an average of 39%. Despite an ongoing trade spat between Australia and China that many thought would steer the Asian giant to other wheat sources, the country booked a record volume of more than 800,000 MMT of Australian wheat in December, according to S&P Global. That was after purchasing just 888 metric tons in November, the lowest since 2011. The December sales are the largest wheat export volume that Australia has ever booked to China and almost double the previous one-month record of 402,000 MMT set in January 2014. China also picked up at least another 200,000 MMT of Australian wheat in January of this year and was reportedly looking to book another 400,000 MMT for shipment later this spring.
It’s also worth noting that Australian barley could be a contender to satisfy a portion of global feed demand this year. S&P Global recently reported an unusual move where a private buyer in the Philippines booked at least 40,000 MMT of Australian feed barley in lieu of feed wheat in January due to the unusually wide price spread of more than $45/mt between the two commodities at the time. The country’s barley exports are estimated to have surged +250% year-over-year to 2.4 MMT over October-January. Click the graphic below for a larger view. (Sources: USDA, S&P Global, ABARES)