Highlights

Post has lowered its estimate for Australian wheat production to 22 million MT for 2017/18, due to expectantly poor seasonal conditions across almost all cropping areas. This is significantly below the record harvest of 35 million MT in 2016/17 and 6.4 percent below the revised official forecast of 23.5 million MT. Post has revised the harvested area for wheat to 12.2 million hectares, 3 percent below the official estimate, due to slow crop development in some regions. Barley production is forecast by Post at 7.5 million MT, 0.5 million MT below the official estimate due to increasingly dry and hot conditions. Post expects sorghum production to rebound to 1.9 million MT due to an increased harvested area and rising prices for alternative crops, such as feed wheat. Post forecasts rice production at 875,000 MT in 2017/18 due to continued water availability and good soil moisture levels. Rice exports are forecast at 0.3 million MT, slightly below the official estimate due to slower monthly exports, with stocks to increase.

EXECUTIVE SUMMARY

Australian winter crop production is expected to decline significantly in 2017/18 compared to the previous year due to less favorable seasonal conditions. Record low rainfall in June has impacted crop development. Further, the Bureau of Meteorology’s seasonal rainfall outlook for the three months to September 2017 is for drier than average conditions over most cropping regions. While soil moisture was sufficient in most areas for early crop development, timely and sufficient rainfall is now necessary in mid to late winter and spring to achieve average yields. These conditions have already contributed to a fall in harvested area of around 3 percent for wheat and barley. Crop abandonment could rise if needed rainfall does not eventuate in July and August. Yields of both wheat and barley are forecast to decline in 2017/18 due to lower average rainfall and higher average temperatures across most growing areas.

Post has lowered its estimate for Australian wheat production to 22 million MT for 2017/18, due to expectantly poor seasonal conditions across almost all cropping areas. This is significantly below the record harvest of 35 million MT in 2016/17 and 6.4 percent below the revised official forecast of 23.5 million MT due to a smaller harvested area and lower expected yields. Post has revised the harvested area for wheat to 12.2 million hectares, 3 percent below the official estimate. Post has revised wheat export volumes for 2017/18 by 1 million MT due to the expected decline in production for the year. Stocks of the record 2016/17 season are expected to fall and prices for premium and feed wheat have already risen by a third in the 3 months to July 2017 due to increased demand.

Barley production is forecast by Post at 7.5 million MT, 0.5 million MT below the official estimate due to increasingly dry and hot conditions over most cropping areas. Barley exports are expected by Post to fall by 0.5 million MT to 7.5 million MT as a result of lower production, a smaller harvested area and lower expected yields. This is 0.5 million MT, or 6.2 percent, below the official forecast of 6.0 million MT for 2017/18. Significant increases in domestic prices for both malting and feed barley across most regions reflect expectations of a lower crop in 2017/18.

Sorghum production in 2017/18 is forecast by Post to rebound to 1.9 million MT in response to an expanded harvested area and rising prices for alternative feed grains. Post forecasts rice production at 875,000 MT in 2017/18 due to the continued availability of lower cost water in New South Wales (NSW) and the increased harvested area. Post forecasts rice exports at 0.3 million MT in 2017/18.

SEASONAL OVERVIEW

Seasonal conditions in early 2017 were positive for the planting of winter crops in most states and good rainfall to April increased soil moisture in in most cropping areas. However, since then rainfall has been significantly below average. Post now considers that the outlook for 2017/18 is much less favorable for the winter crop compared to the previous year. The combination of warm and dry conditions is likely to limit soil moisture available for crop development during spring 2017. Rainfall forecasts by the Bureau of Meteorology (BOM) for the three months from July to September 2017 are for below average rainfall across most of Australia’s winter and summer cropping regions. In addition the BOM has forecast above average temperatures for most cropping regions for the three months to September 2017 and the rest of the year .

Overall rainfall in April, May and June was 40 percent below average for Australia and the month of June was the second driest on record at 62 percent below average. The rainfall outlook for July to September 2017 is for below average rainfall over south-western and south-eastern Australia, while average rainfall or below is likely in other cropping regions during this period. This very dry period to June is attributed by the BOM to much higher than average mean sea level pressure (MSLP) across southern Australia, associated with a positive phase of the Southern Annular Mode (SAM).

As a result of below average rainfall, soil moisture in most cropping regions has also been substandard. By end-June 2017, relative lower layer soil moisture was well below average to extremely low across most of central and western Queensland and adjacent areas of western and southern South Australia as well as parts of Western Australia. Further, lower layer soil moisture is extremely low in Western and South Australia, while in southern NSW very low rainfall and frosts affected crop development.

In Western Australia the sandy soil structure means well-timed but infrequent rainfall can support crop development but the very dry month of June has impacted on many crop regions which had comparatively low soil moisture levels in mid-2017. Crops that were sown dry now require significant and timely rainfall. While better soils in eastern Australia allow greater water retention, upper layer soil moisture was only average for most cropping regions in NSW, Victoria and Queensland in mid-2017. Soil moisture was below average for much of South Australia and above average in Victoria.

The seasonal outlook for irrigated crops such as rice in south-eastern Australia is positive as water storage levels in the Murray–Darling Basin (MDB) were at 69 percent of total capacity in July 2017 or 15,500 . While allocation prices for water in the southern Murray-Darling Basin have increased somewhat, there is certainty of supply for most Australian rice producers. This has encouraged an expansion in the harvested area in 2017/18 to 90,000 hectares, up almost 10 percent on the previous year.

WHEAT

Production

Post has lowered its estimate for Australian wheat production to 22 million MT for 2017/18, due to expectantly poor seasonal conditions across almost all cropping areas. This is significantly below the record harvest of 35 million MT in 2016/17 and 6.4 percent below the revised official forecast of 23.5 million MT. It is also below the long-term average Australian season for wheat production of 24 million MT. In addition, Post has revised the harvested area for wheat to 12.2 million hectares, 3 percent below the official estimate, due to slow crop development in some regions. Low world wheat prices have encouraged a shift in some regions from wheat to higher value crops such as chickpeas, canola and lentils.

Average wheat yields in 2017/18 are expected by Post to fall to 1.8 MT/hectare as a result of poor seasonal conditions, well below the average yield of 2.7 MT/hectare achieved for 2016/17. Since the planting from April 2017, wheat crops in Western Australia and other states have been significantly affected by poor seasonal conditions and low rainfall. In some regions, around 10 percent of the wheat crop appears unlikely to be harvested as less than 20 percent of normal rainfall occurred by July 2017.

Part of the wheat crop was sown dry in regions with poor upper layer soil moisture and significant rainfall is especially important over the next few weeks in areas of north-western New South Wales, the Eyre and Yorke peninsulas in South Australia, and the northern and central regions of Western Australia. Rainfall is urgently needed in these regions for crops to establish. Post further notes that some estimates of Australian wheat production in 2017/18 were made on the assumption that June would provide needed rainfall, but instead the month was the second driest ever recorded. This outlook contributed to a one third increase in the price of wheat over the 3 months to July 2017.

While there are no detailed statistics on the amount of wheat carry over from the previous season, it is likely that storage on farms and ports has increased significantly. However, a sharp rise in wheat exports in the first 5 months of 2017 has cleared a significant part of the 2016/17 record crop and increasing wheat prices suggest that stocks may fall over the year. Australia is forecast by Post to have around 6 million MT of wheat in storage in 2017/18 due to the pace of exports in 2017. Most of this grain is reported to be the higher grade ASW1 which was generally achieved for the 2016/17 crop.

Wheat is the major winter crop in Australia, with sowing starting between April and July. Harvesting starts in central Queensland during August and progresses down the east coast to Victoria, finishing during January. On the west coast, the wheat harvest starts during October and is completed during January. The main producing states are Western Australia, NSW, South Australia, Victoria and Queensland. Western Australia usually accounts for over 40 percent of exports, while a greater proportion of the east coast wheat harvest goes to domestic consumption.

Consumption

Post forecasts wheat total domestic consumption at 7.5 million MT in 2017/18, down from a revised official estimate of 8.0 million MT. This decline reflects lower production due to adverse seasonal conditions. Wheat is Australia’s major winter crop and is used mainly in the production of breads, noodles and pastas, while lower grades of wheat are used as stockfeed. Major types of wheat include Prime Hard, Hard, Premium White, Standard, Soft and Durum, based on protein, grain size and moisture content. Wheat consumption in Australia has declined slightly in recent years, due to changes in diets such as a shift to gluten free products by some consumers. Around 70 kg of flour are consumed in Australia per capita and the domestic market is comparatively mature.

Trade

Post forecasts Australian wheat exports in 2017/18 at 21 million MT for the calendar trading year and 18 million MT for the marketing year from October 2017. The volume of wheat available for export in 2017/18 is revised downwards due to the expected fall in production. Australian wheat exports were around 60 percent higher in the first 5 months of 2017, compared to the same period in the previous year. However, prices were relatively low with Australian Standard White (ASW) selling for around US$190/MT free on board over this period.

In 2017, low prices for Australian wheat increased competitiveness and access to a number of markets such as the Philippines, India and Iraq, especially in the period before Black Sea harvests were available for the international market. Indonesia traditionally accounts for around 20 percent of total wheat exports. Australian exporters are facing greater import competition in the feed market, as well as in the baking industry. Virtually all of wheat is exported in bulk and less than 5 percent has been reportedly exported by container in recent years.

Production, Supply and Demand Estimates: Wheat (‘000 HA and ‘000 MT)

Wheat

2015/2016

2016/2017

2017/2018

Market Begin Year

Oct 2015

Oct 2016

Oct 2017

Australia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

12,793

12,793

12,852

12,852

12,6

12,2

Beginning Stocks

4,67

4,67

5,639

5,639

8,938

8,938

Production

24,168

24,168

35,109

35,109

23,5

22

MY Imports

150

150

150

150

150

150

TY Imports

154

154

150

150

150

150

TY Imp. from U.S.

2

2

0

0

0

0

Total Supply

28,988

28,988

40,898

40,898

32,588

31,088

MY Exports

16,124

16,124

24

24

19

18

TY Exports

15,782

15,782

22

22

22

21

Feed and Residual

3,8

3,8

4,5

4,5

4,5

4

FSI Consumption

3,425

3,425

3,46

3,46

3,5

3,5

Total Consumption

7,225

7,225

7,96

7,96

8

7,5

Ending Stocks

5,639

5,639

8,938

8,938

5,588

5,588

Total Distribution

28,988

28,988

40,898

40,898

32,588

31,088

Yield

1.8892

1.8892

2.7318

2.7318

1.8651

1.8033

BARLEY

Production

Barley production is forecast by Post at 7.5 million MT, or 0.5 million MT below the official estimate, due to increasingly dry and hot conditions. The harvested area for barley is expected by Post to decline by 3 percent to 3.7 million hectares compared to the official estimate of 3.8 million hectares, as dry sown crops have been affected by the very low rainfall levels in June 2017. In some regions around 10 percent of the barley crop appears unlikely to be harvested as less than 20 percent of normal rainfall had occurred to July 2017. Low domestic and international prices for barley at sowing time also reduced the acreage sown to barley compared to crops such as canola.

Barley is usually sown during May and harvested from November. The crop grows through the winter months in Australia, typically in rotation with wheat, canola, oats and pulses. Western Australia is the major barley producing state with over one third of the harvested area and output. NSW, South Australia and Victoria each account for around one fifth of barley production. One third of barley is usually used in Australia for food and beer production, animal feed and seed. The remainder is exported with around half used as feed barley, one third as malting barley, and the rest as malt for the manufacture of beer or spirits.

Consumption

Post forecasts domestic consumption of barley at 3.1 million MT in 2017/18, the same as the official estimate. This represents a decline from the level of consumption reached in 2017/18 of 3.3 million MT when record production and low feed barley prices encouraged greater use of this relatively low cost grain in livestock feeding.

The Australian barley industry produces grain for standard and craft beer and distilled spirits production, as well as feed grain for domestic and overseas livestock industries. Demand for malt barley is increasing while prices for feed barley have weakened due to improved pasture growth across Australia and high winter crop production. Around 30 to 40 percent of barley grown in Australia usually achieves malting grade, with the remainder consumed as food and feed barley. Malting barley is used primarily to produce alcohol (beer and distilled spirits such as Shochu, a Japanese distilled spirit) and food including confectionary, snack foods, breakfast cereals, miso and barley tea.

Normally, Australia produces over 2.0 million MT of malting barley. Around 900,000 MT of malt can be produced from 1 million MT of barley. Annual malt exports are around 700,000 MT mainly to Asia. Post estimates that domestic brewing consumption of malt is around 170,000 MT. Australia’s per capita beer production fell 14 percent to 92 liters from 108 liters in the six years to mid-2014, although more recent official statistics are unavailable. In mid-2016, the Coopers brewery made a $A60 million investment to expand malt production to 54,000 MT annually, with about one third to be used at its nearby brewery. The market share of craft beer is estimated at around 5 percent.

Trade

Post forecasts barley exports at 5.5 million MT in 2017/18, down 0.5 million MT on the official estimate because of an expected decline in production as a result of dry and hot conditions over many cropping areas. Post notes that there are few supplies of barley remaining from the 2016/17 crop especially in Western Australia where strong demand from China has absorbed most available supply. However demand from China is now falling as Black Sea supplies of barley become available. The average monthly barley shipment to China has declined from around 700,000 MT per month in the first quarter of 2017 to only 200,000 in April.

China has been by far the biggest destination for Australian barley exports, ahead of markets such as Saudi Arabia and Japan. Reportedly, malt sales to Chinese brewers has been strong, including a recent 35,000 MT shipment of the new malting variety Compass. Exports of malting grade barley to other countries such as Japan are expected to be stronger over the year with lower supplies from some other countries. The Australian barley industry has sought to strengthen links with buyers in Asia through investment in malting plants in a number of countries. In mid-2017, CBH Group opened a US$70 million 110,000 MT malt plant in Vietnam to provide barley growers in Western Australia with a stronger link to the Vietnamese beer market, which is the fastest growing in the region.

Australia normally accounts for around 20 percent of the global feed barley trade. China has been the largest single market for Australian feed barley exports in recent years, but demand has fluctuated. Post notes that demand for feed barley from China is difficult to predict as livestock producers in that country are now being encouraged to use domestic corn for feed use.

In early 2017, Australian feed barley prices declined to a 15-year low allowing a significant increase in exports to China and South-East Asia although prices have domestic prices have risen by over 20 percent in the 3 mnonths to July 2017, which may constrain the supply available for export for the rest of the year. Exports of feed-grade barley to Saudi Arabia increased significantly in the first quarter of calendar 2017 and a 1.5 million MT feed barley contract was agreed with Saudi Arabia for around A$180/MT. The competitiveness of Australian feed barley exports into China has increased with implementation of the China-Australia Free Trade Agreement (January 2016) which provided Australia with a competitive advantage due to the removal of the import duty for barley.

Production, Supply and Demand Estimates: Barley (‘000 HA and ‘000 MT)

Barley

2015/2016

2016/2017

2017/2018

Market Begin Year

Nov 2015

Nov 2016

Nov 2017

Australia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

4,105

4,105

4,03

4

3,8

3,7

Beginning Stocks

1,12

1,12

669

669

1,773

1,773

Production

8,593

8,593

13,404

13,404

8

7,5

MY Imports

0

0

0

0

0

0

TY Imports

0

0

0

0

0

0

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

9,713

9,713

14,073

14,073

9,773

9,273

MY Exports

5,744

5,744

9

9

6

5,5

TY Exports

5,401

5,401

9

9

6

5,5

Feed and Residual

2

2

2

2

1,8

1,8

FSI Consumption

1,3

1,3

1,3

1,3

1,3

1,3

Total Consumption

3,3

3,3

3,3

3,3

3,1

3,1

Ending Stocks

669

669

1,773

1,773

673

673

Total Distribution

9,713

9,713

14,073

14,073

9,773

9,273

Yield

2.0933

2.0933

61

3.351

2.1053

2.027

SORGHUM

Production

Post expects sorghum production to rebound to 1.9 million MT due to an increased harvested area and rising prices for alternative crops, such as feed wheat. The area harvested is expected to increase to 630,000 hectares, in line with the official forecast and over 50 percent greater than the previous year. The previous season was difficult for sorghum because of the low prices during the early planting window which discouraged sowing especially in northern NSW. Further, dry seasonal conditions in the 3 months to February 2017 adversely affected production and yield for the 2016/17 harvest.

For the 2017/18 season, sorghum plantings are being influenced by higher prices of almost A$300 delivered to some ports, while cotton prices have moderated; creating an incentive for sorghum planting as a summer crop. In addition, higher prices for wheat mean that sorghum is priced more competitively as a feed grain for domestic livestock industries, such as the poultry and beef feedlot industries.

The Dalby ethanol plant in Queensland has announced that it is expanding operations because of the new Queensland ethanol mandate. Currently, around 200,000 MT a year of sorghum is used for ethanol production when the Dalby operation is running at full capacity and this amount could increase in the future. The biofuel plant also produces DDG which is sold mainly as a high-protein stockfeed for pigs, dairy cows and lot-fed cattle.

Australia normally produces around two to three percent of global sorghum production and accounts for five percent of global exports. Sorghum is a summer crop mainly used for livestock feed. Around seventy percent of the Australian crop is grown in Queensland, and the remainder in northern NSW. Sorghum is typically grown as a rotation crop as it is relatively drought tolerant and can tolerate more acid soils. Planting times for sorghum are from September to January.

Consumption

Post forecasts domestic consumption of sorghum in 2017/18 at 1.1 million MT, in line with the official estimate. Sorghum has traditionally been used domestically for feed grain for the beef, dairy, pig and poultry industries, and is the main summer grain crop in most regions of Queensland.

Trade

For 2017/18, Post forecasts sorghum exports of 0.6 million MT for the trade year and 0.8 million MT for the marketing year from March 2018. Export demand for sorghum has varied significantly in recent years. One unknown factor is the extent of Chinese demand for sorghum imports as livestock producers in that country are switching to domestic corn for feed use. Australian sorghum has been uncompetitive into the Chinese feed market, with prices significantly above prices for US origin sorghum. However, Chinese demand for sorghum by the Chinese bajiu spirits industry is expected to be resilient.

Production, Supply and Demand Estimates: Sorghum (‘000 HA and ‘000 MT)

Sorghum

2015/2016

2016/2017

2017/2018

Market Begin Year

Mar 2016

Mar 2017

Mar 2018

Australia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

681

681

416

416

630

630

Beginning Stocks

252

252

280

280

182

182

Production

2,037

2,037

1,107

1,107

1,9

1,9

MY Imports

0

0

0

0

0

0

TY Imports

0

0

0

0

0

0

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

2,289

2,289

1,387

1,387

2,082

2,082

MY Exports

904

904

500

500

800

800

TY Exports

717

717

500

500

600

600

Feed and Residual

1,1

1,1

700

700

1,1

1,1

FSI Consumption

5

5

5

5

5

5

Total Consumption

1,105

1,105

705

705

1,105

1,105

Ending Stocks

280

280

182

182

177

177

Total Distribution

2,289

2,289

1,387

1,387

2,082

2,082

Yield

2.99122.99122.66112.6611

3.0159

3.0159

RICE

Production

Post forecasts rice production at 875,000 MT in 2017/18, in line with the official forecast. This is due to continued water availability, higher dam levels and good soil moisture levels. The area harvested is forecast by Post to be 90,000 hectares in 2017/18, 10 percent above the area in 2016/17. Australian rice growers have benefitted from a significant increase in the supply of irrigation water at a lower cost, and this situation is expected to continue. The industry has the capacity to produce over 1 million MT of rice and this level of production has been approached in recent years due to lower water prices, more reliable rainfall and higher dam levels.

Currently, the water supply for the NSW rice crop is abundant as most major supply dams (such as the Hume, Burrinjuck, Blowering, Lake Victoria and Dartmouth dams) are around 70 percent of full capacity. As a result, general security water allocations in the Murray and Murrumbidgee Valleys are more reliable, while prices on the temporary market have fallen. These changes have made rice more competitive with alternative crops such as nuts and cotton. Further, rice in the Riverina region of NSW can be sown to the end of November, which is not possible for alternative summer crops such as cotton.

Two new shorter season varieties have been trialled by the Australian rice industry. These could change rotations by allowing growers to double crop into rice out of winter cereals. Compared to the longer season varieties, the new shorter season varieties YRM70 and YRK5 could be planted later, offering the opportunity for double or even triple cropping. The short season varieties would allow growers to make better use of late allocations of water but have not yet been scheduled for full commercial release.

The rice industry is mainly based in NSW but hopes to expand into the more water abundant regions in Queensland and northern Australia. Initial rice crops in Queensland have been developed mainly as a summer crop for sugar farmers. The Australian government recently provided A$4 million in funding to support research into the viability of a northern Australian rice industry because of the long-term problems with water availability and cost in southern Australia.

Consumption

Post forecasts that consumption of rice in Australia in 2017/18 will increase slightly to 380,000 MT, as demand for both rice meals and products is slowly expanding. Overall, the Australian population is growing slowly while demand for rice products is relatively mature.

Trade

Post forecasts rice exports at 0.3 million MT in 2017/18, slightly below the official estimate and notes the trend towards lower monthly exports over 2017. Australia is a significant supplier of Japonica rice into the Middle East market, with a one third share of imports. The sole Australian marketer SunRice is concerned about access to the Papua New Guinea market, which can account for a significant share of Australian rice exports. Post notes that official statistics of rice exports do not have country detail because of confidentiality provisions. Post forecasts imports of other types of rice into the domestic market will be stable at 155,000 MT in 2017/18.

Production, Supply and Demand Estimates: Rice (‘000 HA and ‘000 MT)

Rice, Milled

2015/2016

2016/2017

2017/2018

Market Begin Year

Mar 2016

Mar 2017

Mar 2018

Australia

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

23

23

82

81

90

90

Beginning Stocks

223

223

70

70

206

206

Milled Production

180

180

601

601

630

630

Rough Production

250

250

835

835

875

875

Milling Rate (.9999)

7200

7200

7200

7200

7200

7200

MY Imports

167

167

155

155

155

155

TY Imports

163

163

155

155

155

155

TY Imp. from U.S.

11

11

0

0

0

10

Total Supply

570

570

826

826

991

991

MY Exports

140

140

250

250

350

350

TY Exports

165

165

200

200

325

325

Consumption and Residual

360

360

370

370

380

380

Ending Stocks

7070206206261261

Total Distribution

570

570

826

826

991

991

Yield (Rough)

10.869610.869610.182910.30869.72229.7222