A Few Early Thoughts

07/12/10 -- ABARE seem to have surprised more than a few this morning by raising their Australian wheat production estimate to a record 26.8 MMT. The old adage "rain makes grain" would once again appear to be true if they are correct. With the harvest in the east now delayed by 4-6 weeks I guess we won't really have an accurate handle on yields until it really gets going in full swing.

That seems unlikely to happen just yet, with the local Bureau of Meteorology predicting heavy falls of up to 150mm later in the week.

ABARE cut their 2010/11 wheat export estimate by 2.4 MMT to 16 MMT, reflecting the anticipated lack of quality high protein wheat. Even so that is still 0.5 MMT higher than the USDA's latest estimate and up to 2 MMT above some of the others kicking around.

The trade is starting to wake up to ideas that it's America that is going to have to make up the global shortfall in quality wheat next year. With Russia, Ukraine and probably Kazakhstan too pretty much effectively out of the market, and EU stocks likely to be virtually exhausted by spring the US is unlikely to find too much opposition in high protein wheat tenders in the first half of 2011.

The USDA's current US export projection for 2010/11 of 34 MMT could therefore be on the low side. Exactly halfway through the marketing year, they've already exported 14.5 MMT, with further outstanding sales of 8.7 MMT, according to the USDA. That's 23.2 MMT already shipped, or committed for shipment, against the 24.1 MMT exported during the whole of last season.

Projected US ending stocks for 2010/11 are probably also too high, but at 23 MMT - fortunately for the rest of the world - the well is far from running dry.

The flip side of all this is that Australia will be awash in low grade feed wheat in 2011. With plenty of potential homes in Asia willing to take that as an alternative to corn, corn bulls could rightly be a little nervous heading into the year-end with no firm decision on the blender's tax credit yet on the table.

ABARE peg wheat production in Western Australia at 3.8 MMT, leaving 23 MMT to come from South Australia and the eastern states of NWS, Victoria and Queensland. If a third of the latter is only feed grade (and some suggest that it could be more than that) then we've got an extra 7.7 MMT of feed wheat looking for a home on the world marketplace.