Large Aussie crop born into heavy stocks

WEATHER concerns in the northern hemisphere and a rally in corn and soybeans have breathed life into global wheat prices of late.

The Australian 2016-17 winter crop is off to a good start, with Rabobank forecasting increased production across all three large winter crops – wheat, barley and canola.

The prospect of an above-average crop is encouraging for Australian producers, and will no doubt be welcomed.

However, it is likely that a larger Australian wheat crop will be born into an environment of heavy global wheat stocks and a challenging price environment.

As a result, Australian producers will be turning to yield improvements for profitability.

Rabobank is forecasting a wheat crop of 26.7 million tonnes (up 10 per cent year-on-year), a barley crop of 8.8 million tonnes (up four per cent YOY) and a canola crop of 3.3 million tonnes (up 11pc YOY).

Good autumn rainfall not only supported planted area, but has set the crop up for good yield potential.

The positive rainfall outlook, combined with recent rainfall, suggest that yields have the potential to come in above average in 2016-17.

The increase in production will be driven by yield gains, as only small changes are forecast to planted area.

Across the big three winter crops – wheat, barley and canola – we are anticipating croppers to make only minor adjustments to cropping programs, reflecting weather conditions at the time of planting and relative prices.

Wheat area is forecast to remain steady year-on-year, barley area is expected to decline three per cent, while canola acreage is forecast to increase three per cent.

The slight decrease in barley planted area, and increase in canola, largely reflects the price differentials between the two crops at the time of planting.

One key theme for 2016-17 will be an increase in acreage to pulse crops and oats.

Price signals have dictated that where rotations and conditions allow, these more niche crops are planted.

Turning to the wheat price outlook, wheat price gains will likely remain limited by record supplies through 2016-17.

Looking to the northern hemisphere wheat crops, which will be harvested during coming months, US yields are projected to reach a new record, at 48.6 bushels an acre (3.27 tonnes a hectare), while conditions in Europe and the Black Sea also appear to be supportive of large crops.

Illustrating the extent of wheat stocks, the global stocks-to-use ratio is forecast at 36pc in 2016-17, well above the five-year average of 30pc.

So, while the 2016-17 season is shaping up as a good production season for the majority of Australian croppers, the price environment, particularly for cereal crops, looks to remain challenging.