Weather: against the grain?

Australian grain farmers, like all farmers, have long and impressive memories – particularly around the seasons which impacted their farms.

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Carting the Wheat, Samuel Palmer, National Gallery of Victoria, Melbourne

Ask any cropping operator and most likely they’ll remember different cropping rotations going back years and decades. This practical knowledge is more connected to our day-to-day life than many of us consider.

"Farmers are likely to remember the exact week each year when the break – or the first significant rains which follow the dry summer period – finally arrived.”

We talk about this in the latest ANZ Agri Infocus Commodity Insights Winter 2024 report.

Fewer raindrops and smaller crops mean stretching each kernel of grain further between uses. This could include being used as feed for sheep and cattle – whether in paddocks or feedlots – impacting the cost of meat. Or feeding the consumer wheat-based products – including bread and pasta.

It is this reason those farmers can remember the exact week each year when the break – or the first significant rains following the dry summer – finally arrived.

This year while grain producers in many regions aren’t panicking, there is some nervousness over the certainty for good rainfall in coming months.

Waiting for the rains

Particularly in cropping regions of Western Australia, South Australia and western Victoria. These areas are looking optimistically for late season rains to give their crops the best possible opportunity for a reasonable yield.

Fortunately, most of these areas experienced a wetter than predicted summer, so have reasonable soil moisture levels to build on.

That said, in previous seasons when the break has come in June, final crop production volumes have usually been below average levels.

While forecasts will inevitably change as the season evolves, the most recent ABARES forecasts for the 2024/25 grain and oilseed crop continue to predict a rise of about 9 percent in the overall crop, which includes wheat, barley and canola.

However the United States Department of Agriculture (USDA) doesn’t share the optimism of ABARES.

USDA forecasts Australian wheat production to be 10 percent lower than ABARES’ forecast at 25.8 million tonnes, while their barley production forecast is 6 percent lower than ABARES.

USDA have based their forecasts on the differences in rainfall and soil moisture between the different regions.

Specifically, they highlight the differences between the eastern states, which have seen good rains on top of good soil moisture levels, compared to the opposite in South and Western Australia.

Once again, there is still a long way to go and plenty of time for rain before the critical parts of the growing season.

Australian grain consumption

Within Australia, a longer delay before the arrival of the rains in some regions may lead to a notable change in grain and oilseed consumption.

The most obvious impact would be in feed, where a longer-term lack of pasture could see an increase in stock sent to feedlots, lifting domestic feed requirements.

To a lesser extent, feed consumption could also be increased as livestock farmers increase their on-farm grain reserves to prepare for feeding stock in paddocks.

A further factor impacting domestic grain consumption could be the recent population growth from strong immigration levels.

This could drive up demand for flour – as an ingredient in bread, cakes, biscuits, pastries, noodles, pasta and dumpling skins. Could this push up costs for consumers? It is too soon to tell, but we may become apparent in the year ahead.

One group of Australian croppers who will benefit from offshore events will be chickpea farmers after the Indian government announced it will remove all tariffs on chickpea imports until March 2025.

This revoked prohibitive tariffs imposed on chickpea imports in 2017-18, which effectively equated to about 66 percent of the price.

While Australia grew around 2 million tonnes of chickpeas prior to the imposition of the tariffs, since then the crop has barely exceeded 1 million tonnes.

Given this announcement came before the planting of much of the crop, farmers had a chance to increase their planted acreage of chickpeas. Although how much they plant may be limited by accessing seed at such short notice.

China remained the largest destination for wheat, with bulk wheat exports in March 2024 exceeding 700,000 tonnes – around double the next two biggest destinations of Indonesia and Yemen.

Weathering change

As always, the weather in different regions continues to have a major impact on global grain prices.

A combination of flooding and drought in Brazil and insect damage to crops in Argentina is likely to reduce corn and soybean production from these countries.

For Australia this will impact grains which compete with corn in the feed markets, such as wheat and barley, while also impacting global oilseed markets like canola.

Adverse weather in Russia, including both frost and drought, has led to concerns about that country’s 2024 wheat harvest.

After a period in which bumper Russian grain exports contributed to downward pressure on global wheat prices, the state of emergency in several Russian grain producing regions is having a significant impact.

Lowest reserves in a decade

One factor to watch is the ongoing fall in global wheat reserves. With end stocks for 2024/25 forecast by USDA to be about 253 million tonnes, this will be the lowest figure for almost a decade.

We also must factor in China’s immense wheat stocks, which are forecast to outnumber the rest of the world combined for the third year in a row. Absenting China’s wheat stocks, the amount of wheat in reserve globally is forecast to be at its lowest since 2007/08.

This in itself is not a major concern, but it may put a floor under global wheat prices, if there were to be another major production or supply disruption in future.

Many things – such as the consumer prices of wheat items and the cost of feeding the nation’s cattle and sheep stocks – are impacted by weather.

We will know more about the extent of any changes when the rains come ... hopefully soon.

Michael Whitehead is Executive Director for Agribusiness Industry Insights with ANZ

This originally appeared in the ANZ Agri Infocus Commodity Insights Winter 2024 report.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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