Australia’s biggest wheat harvest in nearly a decade threatens to strain a creaky rail network and delay grain shipments just as buyers look to the country to plug global supply gaps caused by a Russian export ban.
The logjam, reminiscent of a scramble by exporters early in 2009 to fill orders immediately after the harvest in Western Australia, will be more severe this time but play out in the eastern states of the world’s fourth-largest wheat exporter.
When harvesting starts in October, eastern Australian exporters’ ability to exploit strong global prices will depend on how quickly their wheat can move to ports from farms and silos – and a bumper harvest could overwhelm rail and port facilities.
“We haven’t handled a crop of this size in eastern Australia for some time and certainly not since deregulation and over that time a number of delivery points have closed with railway lines being closed,” said Malcolm Bartholomaeus, market analyst for Callum Downs Commodity News.
The states of South Australia, Victoria, New South Wales and Queensland are forecast to lift wheat production 42 per cent to 19 million tonnes in 2010- 11, the goverment’s Australian Bureau of Agricultural and Resource Economics (ABARE) estimated on Sept. 14.
In contrast Western Australia’s crop is forecast to fall to 6.1 million tonnes, from 8.2 million in 2009-10.
Higher output means Australia is expected to ship 18.376 million tonnes of wheat in the year to July 2011, up from 15.249 million in 2009-10, according to ABARE.
Rail and port bottlenecks mean a lot of grain will have to be stored on farms as the system fails to move it fast enough to Australia’s key wheat customers in the Asian region.
RAIL CAPACITY KEY CHOKE POINT
Over the past decade, erratic harvests in drought-prone eastern Australia have left grain handlers reluctant to invest in more infrastructure that could lie idle for a lot of the year.
Cash-strapped state governments have been closing down country branch rail lines, mainly used to shift grain to silos on trunk rail lines that connect to export ports.
“We’re hamstrung because the railway is gone,” said Chris Groves, a grain grower in the Cowra district, about 300 km (186 miles) west of Sydney in New South Wales.
“Previously, during a big harvest, when the local silo was filled, the grain handler would organize a train to empty it, but all that’s going to have to be done by truck these days, which is a much slower task,” said Groves.
Australia’s grain-handling systems had been designed for a regulated environment where statutory bodies, such as the Australian Wheat Board, now AWB Ltd., handled wheat exports over 12 months.
But grain exporters who proliferated across the sector once exports were freed up two years ago have pushed for a system that can handle large volumes when prices are good.
“You really want to export the crop during a marketing window that allows you to access the best pricing opportunities, but that may be only a five-to six-month period,” said Mike Chaseling, deputy chairman of grain-handling firm Emerald Group, now half owned by Japan’s Sumitomo Corp.