International demand for Australian wheat has collapsed with exports likely to hit an almost 50-year low as Indonesia and other major customers look to cheaper sources in the Black Sea.
Australia is on track to export just over 6 million tonnes of wheat for the season from October to September 30, less than half the 10-year average and the lowest level in 47 years, according to US Department of Agriculture analysis.
A leading Australian trader and supplier to Indonesia said demand was in freefall.
“It is pretty dramatic, we have lost so much market share,” said the trader, who did not want to be named.
“Demand that Australia considered inelastic is now highly elastic. Indonesian demand, in particular, that it was assumed would come to Australia for reasons of quality and geography has gone elsewhere.”
The alarm over the Black Sea displacing Australia in the international marketplace comes as the GrainCorp board pushes ahead with asset sales and/or the demerger of its malt business following an abandoned $3.3 billion takeover tilt by Tony Shepherd-led Long Term Asset Partners.
Indonesian flour millers and other end users have told Australian industry leaders and traders that they have learnt to work with the Black Sea product and the lower price more than makes up for any difference in quality.
The sharp fall in international demand has left major grain traders facing huge losses and with millions of tonnes they bought from farmers at high prices held in storage, despite two consecutive poor harvests in the eastern states.
It is estimated about 6 million tonnes of wheat will remain in storage, predominantly in export-focused Western Australia, when the next winter harvest starts towards the end of this year.
The price quoted by CBH, Australia's biggest wheat exporter, out of its Kwinana export hub south of Perth has plunged from $400 a tonne in January to less than $275 a tonne last week.
Rural Bank-owned Australian Crop Forecaster (ACF) said drought-related grain shortages in Queensland, NSW and Victoria had played a part in making Australian wheat uncompetitive on the international market.
ACF commodities analyst James Maxwell said the domestic demand had dragged up prices and seen unprecedented volumes of wheat and barley flow from WA, which produced a near record harvest, and South Australia to the eastern states.
More than 2 million tonnes of wheat and barley has been shipped interstate so far this season along with big volumes that have left South Australia on road and rail for Queensland, NSW and Victoria.
“There has never been that much (in interstate shipments) in a season and it is likely to continue into the start of next season,” Mr Maxwell said.
“The drought caused a spike in wheat and barley prices on the east coast and that dragged up WA prices. That had the added effect of making WA grain values uncompetitive with other origins, in particular the Black Sea and Argentina more recently.”
Black Sea wheat is landing in south-east Asia at about $US50 a tonne cheaper than the Australian product and its new season crop will arrive on the market from July.
Mr Maxwell said improvements in farming practices had seen production in Russia and Ukraine go “through the roof”.
He heard first-hand from Indonesian end users at a recent grains conference in Jakarta that they would buy Black Sea ahead of Australia based on the quality being good enough and the price much lower.
The latest Australian Bureau of Statistics figures show that exports from the start of the season to the end of March were 50 per cent behind the five-year average at 4 million tonnes.
Sales to Indonesia were sitting below 500,000 tonnes compared to an average for the period of 1.8 million tonnes.
The freefall in wheat sales has been compounded by storm clouds hanging over barley after China accused Australian exporters of dumping and took action in the World Trade Organisation.
Saudi Arabia, Australia’s second-biggest barley customer behind China, sat out of the Australian market for the first six months of the season as it found cheaper alternatives.
GrainCorp last week blamed drought, trade tensions and fluctuations in wheat and barley prices after its core grains division announced a $52 million loss for the six months to March 31.
The sobering half-year results, which included a warning that GrainCorp's seven east coast port terminals would export little more than 200,000 tonnes of grain over the full year, came three days after LTAP walked away from a takeover proposal after almost five months in due diligence.
CBH, a co-operative controlled by thousands of WA farmers, is not due to report this season’s results until January.
Other big players in Australia wheat exports include Glencore-owned Viterra, Perth-based Plum Grove and Sumitomo-owned Emerald.
Mr Maxwell said there would always be demand for Australian wheat, particularly niche varieties, but it had to be priced into the international market.
He said you only had to go back to 2016-17 when Australia produced a record crop and exported 22.6 million tonnes of wheat for a reminder of how competitive it could be in the international marketplace.
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