Never mind the quality, feel the width.
Australia’s ongoing wheat harvest may end up even bigger than many investors think. At least, if output in Western Australia, the top growing state, proves “massive”, as Ikon Commodities says.
The state’s “crop is bigger than anyone thinks”, according to the Sydney-based broker.
This after Rabobank on Monday forecast growth of 2% year on year, to 23.5m tonnes, in the Western Australian all-grains harvest, even as the bank forecast a small decline in the country’s overall output.
State industry group Giwa forecasts a 3.6% slide in Western Australia’s all-grains output, factoring in a 6.5% slide to 12.1m tonnes in wheat production.
(GrainPriceNews alert – Ikon Commodities has shown a track record of being right, at least during Australia’s spell of La Nina-boosted crops.)
‘Not much high protein wheat’
The problem is that the persistent rains encouraged by La Nina, while boosting yields, undermine specifications.
For one, protein levels tend to get “diluted” in big crops – farmers do not tend to enjoy crops high in both yield and gluten.
Ikon noted report that there was “not much high protein wheat” being reaped in Western Australia.
And then there is the damage that rain causes to ripe kernels.
On mature crops, rainfall can be a large setback, encouraging for instance sprouting on the stalk and the loss of milling specs, leading potentially to downgrades of food wheat as being seen suitable for feed only.
Ultimately, grain may not even be fit for that if ending up with high levels of fungal vomitoxin residues.
Milling vs feed
According to Ikon, Australia is poised to harvest, proportionately, far less top-quality wheat this year than normal.
The Australian hard wheat grade, for instance, used in a wide range of breads and noodles will only account for 11% of the crop, compared with a typical balance of 21%, as measured by the 10-year average. In fact, the 11% would match the lowest reading in that period.
Slightly lower spec Australian premium white wheat will account for 22% of the harvest, below the usual 29%, and close to a decade low.
By contrast, 22% of the crop will be of use only for feed, more than twice the average proportion of 10%.
In New South Wales, where rainfall has been particularly relentless, 55% of wheat harvested will be destined for feed – compared with an average of 12%, Ikon believes.
Small proportion, big harvest
The consolation is that at least we are talking percentage figures of a hefty harvest.
So even, say, the lowball 3% making top-grade Australian prime hard wheat (APH), used for the likes of Japanese ramen noodles, could turn out to be a reasonably large number.
Still, stir fries could be about to get more expensive.
|Ikon estimates of 2022 Australian wheat harvest breakdown, by grade
|Wheat grade||Proportion of 2022 harvest (%)
|| Change on 10-year average (percentage points)
|Australian premium hard||3||-1|
|Australian utility hard||2||-2|
|Australian premium white||22||-7|
|Australian standard white||33||+7|
|Some grades, such as durum, are not included in the table|