Northern harvest weighs in on values

As is typical at this time of year, the arrival of the northern hemisphere harvest begins to weigh on global wheat values.

With wheat hitting the bins, exports from the Black Sea region will pick up pace and start creating more competition for Australian exports.

The chart illustrates the price competitiveness of Australian wheat versus Russian wheat exports into the North East Asian region.

Since the end of March, Russian wheat has been the cheaper option.

This trend has continued into the new marketing year (starting July 1), with the spread between Aussie and Russian wheat now US$40 per tonne into North East Asia.

The cost of ocean sea freight has soared since the start of the year with freight from the Black Sea into North East Asia increasing by 68 per cent.

While this is a sizeable increase, the cost of freight from Australia has been even more extreme, up 117pc to cover the first six months of 2021.

The high cost of freight has started to make Australia lose competitiveness into markets further afield while keeping its advantage to destinations in closer proximity.

The Russian winter wheat crop had a difficult growing season with a dry start followed by cold temperatures in winter.

Favourable spring weather allowed crops to regain some condition with yields anticipated to be only 1.5pc below the five-year average, according to the European Union Monitoring Agricultural Resources report.

The US Department of Agriculture (USDA) has estimated Russian wheat production at a record 86 million for the 2021/22 season.

Wheat production in Russia has been growing strongly in the past couple of decades.

In the first decade of the century (2000-2010), Russian wheat production averaged 47.3mt per year.

This has increased to an average of 67.3mt (2011-2021), a 42pc increase between the two decades.

Comparatively average Australian wheat production has only increased 20pc between the first and second decade of the century.

Most evident in this trend is that Russia is improving its yields at a greater rate than Australia as it adopts modern farming technologies.

This increased yield and farming efficiency will continue to see Russian production rise in coming years assuming climate variability does not significantly affect growing conditions.

Russian wheat exports are also expected to be strong in the 2021/22 season with 40mt anticipated to be shipped according to the USDA.

This is double the Australian wheat export estimate of 20mt.

While Russia has taken the title of largest wheat exporter, Australia holds its place as an origin of good quality wheat.

Australia has the advantage of satisfying key market demands with our sophisticated segregation system that allows for customers to target specific grades.