Australian farmers are holding on to their wheat stocks and refraining from locking in deals for future sales, on hopes a La Nina weather event later this year will dent global output and lift prices from current 10-year lows.
With the global market currently flush with wheat supplies, lower sales by the world’s fourth-biggest exporter is unlikely to have much immediate impact on prices. However, a delay in sales could lead to Australia losing more of its share of the overseas market to rival Black Sea producers.
“There is a heap of wheat in the world. We need a disaster somewhere to get prices above cost of production,” said Dan Cooper, a farmer in Caragabal, 460 kilometres west of Sydney. “A lot of people are holding back forward sales in the hope there will be a weather event that will trigger a market rally,” he added, referring to La Nina.
A U.S. government weather forecaster has said there is a 55-60 percent chance of a La Nina developing during August through October. The weather event is associated with lower rainfall in parts of the Americas, which would curb output in some of the largest global exporters, whereas in Australia the La Nina brings crop-friendly wetter-than-average conditions to the east coast.
As of now, all-wheat plantings are running ahead of forecasts in No.1 exporter, the United States. In Australia, production is set to exceed official estimates of 25.4 million tonnes, analysts said. Output is so good in Australia that its top grains exporter Cooperative Bulk Handling is building emergency storage as all grain production could hit a record high of 16 million tonnes.
While higher production would typically prompt farmers to forward sell to agribusinesses such as GrainCorp Ltd and Glencore, wheat prices near a 10-year trough of $4.05 per bushel have been a deterrent.
The reluctance to sell has pushed Australian wheat prices to about A$30 dollars ($22.45) above Black Sea supplies, which could hurt its share in key export markets, traders said.
Australia in June trimmed its forecast for sales to its largest wheat buyer, Indonesia.
“Australia is going to have to get a lot more competitive to maintain its export volume … we have lost market share predominately to Black Sea exporters and we are not priced to stop that flow,” said a head of grain trading at one of Australia’s largest exporters.