Quality milling wheat under threat

In the latest round of numbers, estimates of Russian exports by some private forecasters have been pulled back to a five-year low. In the European Union there is also uncertainty about the tonnage that will be available for export as the final stages of their harvest are being completed.

However, it is also the volume of quality wheat that is an issue. The United States spring wheat crop is small, as is the Canadian crop. Current estimates for the Canadian all wheat crop have come in as low as 20.18 million tonnes, the lowest in 14 years. That is robbing global markets of some supply of quality milling wheat.

On top of that, there have been substantial rains in Canada in the past week. With the spring wheat harvest only 25 per cent complete, there is a risk to a large part of the, albeit small, Canadian crop.

The wet season in France and Germany has been well documented. The EU crop is up 11mt from last year, but a higher percentage than normal has been impacted by the late rains in terms of quality.

On the other hand, the smaller wheat crop in Russia has resulted in a higher quality crop. 44pc of their harvest is of good milling quality compared to 32pc last year, and the percentage in the lower grades is also down on last year.

It is expected that more of the EU crop than normal (percentage and tonnage wise), will probably have to find its way into the feed market. That will take some pressure off Russian exporters who compete for business with the EU and other Black Sea exporters.

The smaller crop in Russia should see Russian wheat prices well supported, but if they become a major source of quality milling wheat, along with Ukraine, their export markets may continue to support those higher price levels.

The implications for Australia are twofold. We are expecting a big crop again. The lower end of our protein and quality range (ASW and AGP grades) will have to compete into a market where there are potentially large supplies of feed grade wheat from the EU and Canada, as well as having to compete against coarse grains.

However, higher protein good quality milling wheats should find good demand into Asian markets, particularly if ocean freight rates are in our favour. The net result should be premiums for higher protein wheat grades (AH1, AH2 and APH), compared to our lower ASW grade.