The forecast of more wheat supplies from Australia is bearish for the market as it comes against the backdrop of higher-than-expected global production and stockpiles estimated by the US Department of Agriculture.
Exports for the marketing year to Sept. 30, 2012 were seen at 20.4 million tons, up 2.8 percent from a projection of 19.85 million tons in June, data from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) showed.
Larger wheat crops in Canada, the European Union and Ukraine will help boost global supplies by 6 million tons, the USDA said in its monthly report on Monday. Ending stocks would be the second-largest in a decade, while wheat exports would drop seven percent, it said.
US wheat prices have slid more than 6 percent so far this month, weighed down by expectations of higher world production and losing ground after climbing more than 10 percent in August when the market was buoyed by late planting of the spring crop and a drought in the southern US Plains.
“Prices are likely to come under pressure toward the end of the year when Australia starts selling wheat. I think US and Russia will speed up export before Australia comes in the market,” said Ker Chung Yang, an analyst at Phillip Futures in Singapore.
According to the USDA report, world wheat stocks are now forecast at 194.6 million tons, up 5.7 million tons from last month, and far above average trade guesses of 187.7 million tons, analysts said.
In Asian trade on Tuesday, wheat prices showed little immediate reaction to the ABARES data, with light early gains fizzling out for December delivery US wheat futures to stand almost flat at $7.27-3/4 per bushel, after hitting a one-month low on Monday.
Australian wheat 2010/11 exports of 18.65 million tons estimated by ABARES showed Australia had the capacity of handling larger shipments in the years ahead, traders said.
“I think the market has probably surprised itself with how much it has managed to push this year,” said Brett Cooper, a senior manager of markets at FCStone Australia.
“This year’s exports were done in a climate of having less shipments out of Western Australia than we would have in a big year, there is no reason why we couldn’t achieve a bigger number next year.”
Western Australia, typically Australia’s top wheat exporting state, suffered from a severe drought last year which slashed exports from the region. But 2011/12 output is expected to rebound to around 9 million tons, nearly double last year.
Wheat exports to neighboring Indonesia are expected to rise around 30 percent in the year to September, Peter Woods, the chief executive of Wheat Exports Australia (WEA) told Reuters on Tuesday.
“Western Australia should be producing more wheat, so that gives us an opportunity to have the right type of proteins that Indonesia needs for noodle production,” added Woods, whose group accredits and monitors bulk wheat exporters in Australia.
Indonesia, which relies entirely on imports for its wheat, currently gets around 60 percent of its supplies from Australia, with Canada and the US accounting for about 30 percent.
Australian wheat exports to Indonesia are expected to hit about 4 million tons for the marketing year ending Sept. 30, 2011, versus under 3 million tons the previous year, Woods added during an interview in Jakarta.
Premium wheat from Western Australia, used to make bread and noodles, is also a favorite of East Asian countries, such as Vietnam, and Taiwan.
“Japan is definitely a key area,” Woods said.
“Vietnam is using more feed wheat. This region (Asia) is very important to the Australian grain industry.”
National wheat output was forecast at 26.196 million tons for 2011/12, up a touch on 26.159 million tons estimated three months ago, ABARES said.
The forecast is just shy of a record 26.3 million tons reaped in 2010/11, when a strong La Nina weather event that brought rain to eastern Australia resulted in a wet harvest, boosting output but downgrading much of the crop to general purpose or feed wheat grades.
The Commonwealth Bank of Australia (CBA) said the ABARES wheat production forecast appeared too optimistic.
“In order to achieve ABARES production forecast, seasonal conditions over the next few months need to be perfect. Perfect conditions rarely occur in agriculture,” it said in a research report. CBA sees a national harvest of 23.5 million tons.
