Australian Forecaster Raises Wheat Estimate

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CANBERRA (Dow Jones) — Australia’s chief commodities forecaster Tuesday raised its production forecasts for wheat this crop year to a record 29.5 million metric tons, which an analyst said would also boost exports, maintain downward pressure on domestic prices and threaten to further build inventories in the country.

In its quarterly crop report, the Australian Bureau of Agricultural and Resource Economics and Sciences forecast wheat production would rise 4.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} from its December estimate and 5.7{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} from the previous record of 27.9 million tons in the crop year ended March 31, 2011.

After domestic demand of 6 million tons a year is met, the balance of local production is available for export, usually making Australia one of the largest suppliers to the world wheat trade.

Abares forecast exports in the marketing year that began Oct. 1 at a record 22.3 million tons, up 3.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} from a December estimate and a 20{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} rise from actual exports of 18.6 million tons in 2010-11.

Dean Smith, senior analyst for grains and oilseeds at Rabobank Australia, described Australian exporters’ circumstances as challenging given strong domestic availability of relatively low-protein wheat and ample export supplies available from competing origins.

This means that Australian wheat likely will continue to sell at a price discount to other origins, as traders try to attract demand from overseas buyers, he said.

“We’re the cheapest-origin wheat in the world and have been for some time,” he said.

Even so, at the end of this marketing year, Australia will likely find itself in the unusual position of having made record wheat exports even as wheat inventories stay at record levels.

“We just have to get used to having a stock position,” he said by phone.

Australia’s price discount will only disappear if the massive stock position contracts, he said.

But this could take a long time given the possibility of another average to above-average season ahead following heavy rainfall this year in parts of winter cropping areas in the eastern states, he said.

Australian exporters must also cut prices to shift wheat because the monthly carrying costs of the grain, around A$2 a ton, add up, he said.

“Unless we get a supply shock, it doesn’t really warrant hanging onto grain for too long,” he said.

Source:  Dow Jones

Posted by Haylie Shipp

 

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