By Andrew Whitelaw | Source: ABARES, ACA
After a woeful couple of months in Australian cropping areas since the September ABARES crop update, and with the country well in the throes of harvest, the December update has been released. At this time of year, the update should have a higher level of accuracy than previous reports. In this update, we delve into the numbers and see what they expect from the Australian crop. Is this report bearish or bullish, or unsurprising?
Firstly, I wholeheartedly apologise for this title, it’s terrible. The crop in Australia, has had almost everything thrown at it this season. The headline number on wheat that will be quoted ad infinitum will be the drop year on year, with production down a massive 42%. It is a fallacy to focus on the year on year, especially as we have come off the back of a monster harvest. It is far more important to examine against the average.
In figure 1, the country’s wheat production is plotted against a series of averages. In this chart, we can clearly see the impact that the 2016/17 crop has had on the ten-year average. This season, the crop will be 17% below the ten-year average & 8% below the ten-year (excluding 16/17) average. Against the five-year average, we are a whopping 23% below. ABARES have also downgraded last years crop by 100k, although still1.5mmt above USDA estimates.
The estimates for the canola crop are surprising, with it being upgraded by 4% (+98.2k). This is as a result of increased production in WA (+325k) counteracting a major fall in NSW (-217k). It must be noted that harvest deliveries in WA have already exceeded 1.65mmt, which will require further revisions.
In figure 2, canola production is displayed. As we can see production is only slightly below the ten-year average, and well above the average excluding 16/17. The falling production in NSW, has the capacity to assist with pricing, due to the high domestic rush demand.
The barley crop is largely unchanged, with overall production down a meagre 0.2% or 19.2kmt. In a similar fashion to canola, the increase in WA (+303kmt) has balanced the fall in NSW (-316kmt). This year barley, will be below the 10y average (ex 16/17) (figure 3).
In table 1 & 2, the changes are summarised:
The report is overall bullish for wheat, and barley with production levels well below average. On canola, the report is bearish for WA, but ultimately bullish for NSW where pathways to the domestic market are ample.
It will be interesting to see how the market reacts to these estimates, however my view would be that this release will have little overall impact on pricing. The ABARES estimates are largely in line with trade estimates.
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