Australian Rainfall Could Drive Up Global Wheat Prices, Strategist Says

(Bloomberg) -- Low rainfall in some key Australian wheat-growing areas could cut production and drive up global prices if it’s not resolved in the next few weeks, according to agricultural commodities strategist Tobin Gorey from Commonwealth Bank of Australia.

Forecasters are tipping a bumper 2020-21 crop after widespread early rains in eastern states. Still, Western Australia, the biggest wheat grower and exporter, and South Australia, another key area, are yet to receive substantial falls.

“Australia’s eastern winter crop regions, mostly, have the best April moisture profiles they had for several seasons. So there’s optimism in the east,” Gorey said by email. “In the south and west though, winter crop regions are very dry. So these regions are on our watch list.”

There’s no relief in sight for Western Australian cropping areas in the coming eight days, while falls of 10-25 millimeters are predicted for much of South Australia and Victoria, as well as parts of New South Wales, according to a report from government forecaster Abares.

Dryness Risk

Another two to three weeks without rain in Australia’s south and west would “likely start to have an impact on global prices,” Gorey said.

Wheat futures in Chicago fell on Tuesday and Wednesday this week amid optimism surrounding rain in some U.S. and Black Sea growing areas, which are also experiencing concerning levels of dryness, along with parts of Europe. Prices rose on Thursday as Saudi Arabia announced a buying tender.

Also influencing the market are countries employing or mulling protectionist measures as coronavirus shutdowns cast doubt over the effectiveness of global supply chains.

Australian wheat production in the 12 months from October, the crop currently being planted, may surge to 23 million tons from 15.2 million a year earlier, the USDA’s Foreign Agricultural Service said in a report, while IKON Commodities predicts 2020-21 output could be as high as 28.53 million tons.

©2020 Bloomberg L.P.

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