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Tuesday, June 23, 2015

ABARES forecasting steady grain yields despite good start

By Angus Brown  |  Source: ABARES, ASX, CME

Key points

  • ABARES June crop report expected yields to be similar to last year, with changes in areas for barley and canola.
  • Wheat production expected to be steady, while barley forecast to be higher and canola down.
  • ABARES basing forecasts on a dry year, with rainfall near average likely to see much higher wheat and barley production.

2015-06-23 ABARES Grain TBL 1 First

2015-06-23 ABARES Grain FIG 1

2015-06-23 ABARES Grain FIG 2

2015-06-23 ABARES Grain FIG 3

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released its June crop report on 10 June, containing the first forecasts for area, yield and production for Australian winter crops for the 2015-16. In this article, we extract the important national data that could impact prices. The most interesting figures are the steady yields across the board.

ABARES is often criticised for simply forecasting figures similar to last year’s levels. For yields for the coming year, this is exactly what it did in its June crop report.

In terms of wheat, ABARES has forecast area, yield and production to be basically steady on last year (see table 1 and figure 1).  The state data shows decreases in NSW (2%) and SA (7%) production, caused by lower per hectare yields, which are offset by higher yields in WA.

The lower yields in NSW are attributed to the forecast of a dry winter, something which has since been alleviated. ABARES has factored a normal spring despite the El Nino forecast.  For SA, yields are expected to head back toward the long term average, but this is 12% below the five-year average.

The end result is forecast to be a national wheat crop that is 8.6% below the five-year average. This would require dry conditions similar to last year.

ABARES has made some adjustments to barley planting areas, with strong prices and better drought tolerance expected to see more hectares at the expense of canola this year.  Barley yields are expected to be lower however, again driven largely by lower yields in NSW (1.7t/ha) and SA (2.05t/ha). 

Barley production is forecast to be 3% higher than last year, and 1% higher than the five-year average at the second highest level since 2005-06. This is entirely driven by an increase in area.

Canola area is expected to decline heavily, with decreases in all major producing states.  The canola area on the east coast is forecast to be down 17%.  Again, ABARES has forecast steady yields, with declines in NSW offsetting increases in WA and SA.

Canola production is expected to be down 13% at its lowest level since 2010-11, a result of the lower area.  Even if canola yields reach the very good levels of 1.4t/ha seen in 2013-14, production will still be down 4% on last year.

What does this mean?

It goes without saying that it’s impossible to predict yields at this time of year. However, the planted area forecasts from ABARES fits pretty well with anecdotal evidence. 

The lower canola area is very bullish for local canola basis (the premium over the international market). This basis currently sits at $30/t, a historically strong level for this time of year.  Even with a normal season, canola basis could strengthen, and it won’t take too much of a yield decline to see it head higher rapidly.

For wheat and barley, the forecasts of steady yields are essentially factoring in a dry year on the east coast, similar to what we saw in 2014-15.  Price-wise we are already seeing similar wheat and barley yields to last year factored into local values, which are very strong relative to international markets. 

There is some downside price risk for wheat and barley if we get a good season. The five-year average wheat yield would add 2.5mmt of wheat and 0.5mmt of barley, both of which would see basis weaken back toward five-year average levels.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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