THE WORLD is awash with grain after another big increase in the production of grains and oilseeds globally following records in several major producing countries.
Sellers of grain are looking to see where demand is likely to come from, with many key importers having solid stocks in store.
However, an unlikely source of demand may creep up according to some analysts in India.
India is a major producer of grain in its own right and can be a net exporter of wheat some years, but this year may have to import as much as four million tonnes of wheat.
This is fantastic news for Australian wheat exporters, as over the past three years, Aussie exports have made up 75-80 per cent of total wheat imports.
The news of India potentially coming to the market is good news for the wheat sector faced with finding a home for wheat in a global market flush with an additional 10mt of production year on year and record US wheat stocks.
India’s domestic wheat ending stocks have fluctuated greatly over the past twenty years.
The 03/04 season for example saw Indian wheat exports reach 5.7mt, while three years later in 06/07, imports reached 6.7mt according to US Department of Agriculture (USDA) data.
Last season (15/16) Indian wheat production fell short of total domestic consumption by around 2mt.
According to local Indian grain traders, demand for wheat now is much higher than at the same time last year and is expected to pick up significantly during and after the Hindu festive season which starts in October.
Over the past 3 seasons Australia has exported around 800,000 of wheat per annum to India according to USDA data.
In terms of paygrades, Indian preference is for APW quality wheat.
Australia’s strict bio-security protocols put it in the driver’s seat to execute sales to India as it is one of the few exporters that can sell into the market due to India’s fumigation and ergot requirements.
Ukraine is a major competitor into India and has recently executed a 400,000t consignment of 11.5pc protein wheat.
However, there are emerging production issues in Ukraine due to heavy rain impacting on the winter plant so Ukrainian wheat values have risen.
This should see more Indian wheat demand swing back to Australia.
India will be an invaluable alternative market for Australia, which has suffered from a drop in demand from traditional markets in the Middle East and Northern Africa.
The emerging wheat powerhouses from the Black Sea and the EU have been selling wheat into traditional US, Canadian and Australian destinations in recent years.
And the Indian demand for wheat is unlikely to dip even if more wheat acres are planted there due to a booming population.
A report by the United Nations Department of Economic and Social Affairs completed in October 2016 found that India’s population
by 2022 is expected to surpass that of China growing to approximately 1.4 billion people.
As the population growth in India remains strong, the gap between production and consumption should increase resulting in a more stable demand point for Australian wheat.
In the near term, Australian sales have been slow, partly while the Australian trade gets a handle on the harvest and the quality parameters of the crop, in particular the risk of ergot contamination, and partly because of an Indian requirement for imports to be treated with methyl bromide prior to vessel loading.
However India represents an exciting opportunity, with many macro-economic analysts suggesting India will be to the 2020s what China was to the 2000s.
In the near-term Australia should, and needs to capture as much of this Indian wheat demand as possible if we are to keep our stocks from growing.
If we see export volumes increase, we could see some support for local wheat prices through 2017 and hopefully for many years to come.
- Richard Perkins is head of marketing and advisory at Market Check